Informed Trading and the Dynamics of Client-dealer Connections in Corporate Bond Markets

99 Pages Posted: 8 Dec 2020 Last revised: 22 Jan 2022

Date Written: January 19, 2022

Abstract

Using a unique regulatory dataset with disclosed counterparty identities, we show that clients in corporate bond markets outperform when they trade with more dealers. The effect is stronger for informationally sensitive clients, assets, and during informationally intensive periods including Covid-19. Identifying clients who simultaneously trade in government and corporate bonds reveals that connections have larger and more persistent effects in the corporate bond market. Using a Kyle (1989)-type model, we show that both the degree of inter-dealer competition and the magnitude of private information could explain the strength of the performance-connection relation; we find stronger empirical evidence for an information-based mechanism.

Keywords: Informed Trading, Corporate Bonds, OTC Markets, Client-Dealer Connections, Inter-Dealer Competition, COVID-19

JEL Classification: G12, G14, G23, G24

Suggested Citation

Czech, Robert and Pinter, Gabor, Informed Trading and the Dynamics of Client-dealer Connections in Corporate Bond Markets (January 19, 2022). Bank of England Working Paper No. 895, Available at SSRN: https://ssrn.com/abstract=3744325 or http://dx.doi.org/10.2139/ssrn.3744325

Robert Czech (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/researchers/robert-czech

Gabor Pinter

Bank of England ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
84
Abstract Views
463
rank
404,406
PlumX Metrics