Download This PaperLighting up the Dark: Liquidity in the German Corporate Bond Market
61 Pages Posted: 5 Oct 2018
Date Written: September 17, 2018
Abstract
We study the impact of transparency on liquidity in OTC markets. We do so by providing an analysis of liquidity in a corporate bond market without trade transparency (Germany), and comparing our findings to a market with full post-trade disclosure (the U.S.). We employ a unique regulatory dataset of transactions of German financial institutions from 2008 until 2014 to find that: First, overall trading activity is much lower in the German market than in the U.S. Second, similar to the U.S., the determinants of German corporate bond liquidity are in line with search theories of OTC markets. Third, surprisingly, frequently traded German bonds have transaction costs that are 39-61 bp lower than a matched sample of bonds in the U.S. Our results support the notion that, while market liquidity is generally higher in transparent markets, a sub-set of bonds could be more liquid in more opaque markets because of investors "crowding" their demand into a small number of more actively traded securities.
Keywords: Corporate Bonds, WpHG, Liquidity, Transparency, OTC markets
JEL Classification: G15
Suggested Citation: Suggested Citation
Giorgio Ottonello
Nova School of Business and Economics ( email )
Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal
Leibniz Institute for Financial Research SAFE ( email )
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
HOME PAGE: http://www.safe-frankfurt.de
Ca Foscari University of Venice - Dipartimento di Economia ( email )
Cannaregio 873
Venice, 30121
Italy
Marti G. Subrahmanyam
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States