Transparency and Liquidity: A Controlled Experiment on Corporate Bonds

Posted: 13 Apr 2007

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Edith S. Hotchkiss

Boston College - Carroll School of Management

Erik R. Sirri

Babson College

Multiple version iconThere are 3 versions of this paper

Abstract

This article reports the results of an experiment designed to assess the impact of last-sale trade reporting on the liquidity of BBB corporate bonds. Overall, adding transparency has either a neutral or a positive effect on liquidity. Increased transparency is not associated with greater trading volume. Except for very large trades, spreads on newly transparent bonds decline relative to bonds that experience no transparency change. However, we find no effect on spreads for very infrequently traded bonds. The observed decrease in transactions costs is consistent with investors' ability to negotiate better terms of trade once they have access to broader bond-pricing data.

Keywords: transparency, liquidity, corporate bonds

JEL Classification: G14, G18, G23, G24, G28

Suggested Citation

Goldstein, Michael A. and Hotchkiss, Edith S. and Sirri, Erik R., Transparency and Liquidity: A Controlled Experiment on Corporate Bonds. Review of Financial Studies, Vol. 20, No. 2, pp. 235-273, March 2007. Available at SSRN: https://ssrn.com/abstract=979069

Michael A. Goldstein (Contact Author)

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Edith S. Hotchkiss

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

Erik R. Sirri

Babson College ( email )

231 Forest Street
Babson Park, MA 02457
United States
781-239-5799 (Phone)

HOME PAGE: http://faculty.babson.edu/sirri/

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