Bond Market Structure and Volatility

57 Pages Posted: 22 Apr 2021 Last revised: 29 Apr 2022

See all articles by Isarin Durongkadej

Isarin Durongkadej

Georgia College & State University

Louis R. Piccotti

Oklahoma State University - Stillwater - Spears School of Business

Date Written: April 23, 2022

Abstract

We apply 24-hour variance ratio methodology to examine dealers’ behavior and pricing process in corporate bond markets. We find that the open-to-open return volatility is on average higher than the close-to-close return volatility. This implies that the information processing during the market open affects the price volatility of the bond markets. We find that the cause of the high volatility during the market open is from the monopolistic power of the corporate bond dealers evidenced by the lower variance ratios after we introduce the Volcker Rule as an exogenous shock.

Keywords: Fixed income, market microstructure, variance ratios, corporate bonds, bond dealers, monopolistic power

JEL Classification: G12, G14

Suggested Citation

Durongkadej, Isarin and Piccotti, Louis R., Bond Market Structure and Volatility (April 23, 2022). Available at SSRN: https://ssrn.com/abstract=3831296 or http://dx.doi.org/10.2139/ssrn.3831296

Isarin Durongkadej (Contact Author)

Georgia College & State University ( email )

410 West Greene St.
Milledgeville, GA 31061
United States

Louis R. Piccotti

Oklahoma State University - Stillwater - Spears School of Business ( email )

460 Business
Stillwater, OK 74078-0555
United States

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