Sequential Search for Corporate Bonds

Abstract

In over-the-counter (OTC) markets, customers search for counterparties. Little is known about this process, however, because existing data is comprised of transaction records, which are only informative about the end of a successful search. Leveraging data from the leading trading platform for corporate bonds, we offer evidence about the search process: we analyze customers’ repeated attempts to trade (successful and unsuccessful). We estimate that it takes two to three days to complete a transaction after an unsuccessful attempt, with substantial variation depending on trade and customer characteristics. Our analysis offers insights into the sources of trading delays in OTC markets.

Keywords: Over-the-counter markets, intermediation, corporate bonds, time-to-trade

JEL Classification: G11, G12, G14, G21