Expected Issuance Fees and Market Liquidity

41 Pages Posted: 2 Oct 2017 Last revised: 12 Nov 2018

See all articles by Boyd Buis

Boyd Buis

ABN AMRO - ABN-Amro Bank, The Netherlands

Mary Pieterse-Bloem

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: November 12, 2018

Abstract

This paper studies the impact of expected issuance fees on market liquidity in the Euro-area government bond market. Investment banks have a dual role as primary dealer in the secondary market as well as competitor for lead manager in the primary market. Primary dealers have the incentive to increase liquidity due to competition for issuance fees because lead managers are selected based on their liquidity provision in the secondary market. We find that the expected issuance fee is significantly related to market liquidity. Issuance fee driven liquidity is especially strong for countries with high funding needs, in periods of high uncertainty, and for bonds with high search costs.

Keywords: sovereign bonds; market microstructure; market liquidity; issuance fee

JEL Classification: G12; G18; G24

Suggested Citation

Buis, Boyd and Pieterse-Bloem, Mary and Verschoor, Willem F. C. and Zwinkels, Remco C.J., Expected Issuance Fees and Market Liquidity (November 12, 2018). Available at SSRN: https://ssrn.com/abstract=3045453 or http://dx.doi.org/10.2139/ssrn.3045453

Boyd Buis

ABN AMRO - ABN-Amro Bank, The Netherlands ( email )

NL-1000 EA Amsterdam
Netherlands

Mary Pieterse-Bloem

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Remco C.J. Zwinkels (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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