Bond Market Structure and Volatility

49 Pages Posted: 22 Apr 2021 Last revised: 29 Aug 2023

See all articles by Isarin Durongkadej

Isarin Durongkadej

San Jose State University

Louis R. Piccotti

Oklahoma State University - Stillwater - Spears School of Business

Date Written: August 27, 2023

Abstract

We apply variance ratio methodologies to examine market quality in the US corporate bond market. We find that the open-to-open to close-to-close return variance ratio is greater than one suggesting that the corporate bond market is less efficient during the opening hours than during the closing hours. We show that the higher variance ratio at the open is related to the market power of dealers at the open. Market quality appears to be higher when bond volume and credit rating are low. The results are consistent with dealers behaving strategically to unload risky assets and take on safer assets.

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 (August 27, 2023). Available at SSRN: https://ssrn.com/abstract=3831296 or http://dx.doi.org/10.2139/ssrn.3831296

Isarin Durongkadej (Contact Author)

San Jose State University ( email )

CA
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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