Transparency and Liquidity: A Controlled Experiment on Corporate Bonds

Goldstein, Michael A.; Hotchkiss, Edith S.; Sirri, Erik R.

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Transparency and Liquidity: A Controlled Experiment on Corporate Bonds

Review of Financial Studies, Vol. 20, No. 2, pp. 235-273, March 2007

Posted: 13 Apr 2007

See all articles by Michael A. Goldstein

Edith S. Hotchkiss

Boston College - Carroll School of Management

Erik R. Sirri

Babson College

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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: 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