Market Transparency and the Marking Precision of Bond Mutual Fund Managers

33 Pages Posted: 21 Jun 2016

See all articles by Gjergji Cici

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

College of William and Mary - Mason School of Business

Yalin Gündüz

Deutsche Bundesbank

John J. Merrick, Jr.

Raymond A. Mason School of Business - William & Mary

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

We analyze the dispersion of month-end price marks simultaneously placed on identical corporate bonds by different US mutual fund managers before and after initiations of TRACE and introductions of issuers into Markit's CDS database. Disseminated bonds show large and statistically significant decreases in mark dispersion around three key TRACE system rollout events. Dispersion for large, investment grade bonds fell 20% to 83% after the start of TRACE reporting. A difference-in-differences regression analysis of the two-stage rollout of BBB-rated bonds provides clearer evidence suggesting that TRACE led to a decrease in price dispersion. TRACE-associated decreases in crossfund bond mark dispersion provide indirect support for Bessembinder, Maxwell, and Venkataraman's (2006) information-based channel relating transparency and pricing. During the pre-TRACE period, we also find some evidence that mark dispersion fell for investment grade issuers after introductions into Markit's database.

Keywords: TRACE, CDS, bonds, transparency, marks

JEL Classification: G12, G23

Suggested Citation

Cici, Gjergji and Gibson, George Scott and Gündüz, Yalin and Merrick, Jr., John J., Market Transparency and the Marking Precision of Bond Mutual Fund Managers (2014). Bundesbank Discussion Paper No. 09/2014. Available at SSRN: https://ssrn.com/abstract=2796963

Gjergji Cici (Contact Author)

University of Kansas - School of Business ( email )

Capitol Federal Hall
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785-864-3873 (Phone)

HOME PAGE: http://business.ku.edu/gjergji-cici

George Scott Gibson

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757/221-1673 (Phone)

Yalin Gündüz

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

John J. Merrick, Jr.

Raymond A. Mason School of Business - William & Mary ( email )

Williamsburg, VA 23187
United States
757-221-2721 (Phone)

HOME PAGE: http://https://mason.wm.edu/faculty/directory/full-time-faculty/merrick_j.php

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