Dealers' Market Power in the Corporate Bond Market

43 Pages Posted: 22 Apr 2021 Last revised: 4 Aug 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: August 3, 2022

Abstract

We apply 24-hour variance ratio methodology to examine dealers’ behavior and pricing process in corporate bond markets. We find that corporate bond dealers exert significant market power deviating bond prices from their equilibrium. Dealers extract greater rents at the market open than at the market close. Dealers exert market power less when the volume and credit rating are low. Consistent with the literature, the results show that dealers strategically unload risky assets and take on safer assets. We confirm our results using 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., Dealers' Market Power in the Corporate Bond Market (August 3, 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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