Markets: Transparency and the Corporate Bond Market
AbstractFor decades, corporate bonds primarily traded in an opaque environment. Quotations, which indicate prices at which dealers are willing to transact, were available only to market professionals, most often by telephone. Prices at which bond transactions were completed were not made public. The U.S. corporate bond market became much more transparent with the introduction of the Transaction Reporting and Compliance Engine (TRACE) in July 2002. Beginning that date, bond dealers were required to report all trades in publicly issued corporate bonds to the National Association of Security Dealers, which in turn made transaction data available to the public. In this paper, we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market. We review how TRACE has affected the costs that corporate bond investors paid to bond dealers for their transactions. We canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by American Economic Association in its journal Journal of Economic Perspectives.
Volume (Year): 22 (2008)
Issue (Month): 2 (Spring)
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael J. Fleming, 2003.
"Measuring treasury market liquidity,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Sep, pages 83-108.
- Bruno Biais & Richard C. Green, .
"The Microstructure of the Bond Market in the 20th Century,"
GSIA Working Papers
2005-E57, Carnegie Mellon University, Tepper School of Business.
- Biais, Bruno & Green, Richard, 2007. "The Microstructure of the Bond Market in the 20th Century," IDEI Working Papers 482, Institut d'Économie Industrielle (IDEI), Toulouse.
- Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
- Bloomfield, Robert & O'Hara, Maureen, 1999. "Market Transparency: Who Wins and Who Loses?," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 5-35.
- Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 579-603.
- Bessembinder, Hendrik & Maxwell, William & Venkataraman, Kumar, 2006. "Market transparency, liquidity externalities, and institutional trading costs in corporate bonds," Journal of Financial Economics, Elsevier, vol. 82(2), pages 251-288, November.
- Paul Schultz, 2001. "Corporate Bond Trading Costs: A Peek Behind the Curtain," Journal of Finance, American Finance Association, vol. 56(2), pages 677-698, 04.
- Naik, Narayan Y & Neuberger, Anthony & Viswanathan, S, 1999. "Trade Disclosure Regulations in Markets with Negotiated Trades," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 873-900.
- Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
- Madhavan, Ananth & Porter, David & Weaver, Daniel, 2005. "Should securities markets be transparent?," Journal of Financial Markets, Elsevier, vol. 8(3), pages 265-287, August.
- Kahn, Alfred E, 1988. "Surprises of Airline Deregulation," American Economic Review, American Economic Association, vol. 78(2), pages 316-22, May.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Allen, Linda & Gottesman, Aron A. & Peng, Lin, 2012. "The impact of joint participation on liquidity in equity and syndicated bank loan markets," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 50-78.
- Max Bruche & Anatoli Segura, 2013.
"Debt Maturity And The Liquidity Of Secondary Debt Markets,"
- Max Bruche & Anatoli Segura, 2013. "Debt maturity and the liquidity of secondary debt markets," LSE Research Online Documents on Economics 55404, London School of Economics and Political Science, LSE Library.
- Meeks, Roland, 2012. "Do credit market shocks drive output fluctuations? Evidence from corporate spreads and defaults," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 568-584.
- Narjess Boubakri & Sadok El Ghoul & Omrane Guedhami & Anis Samet, . "The Effects of Analyst Forecast Properties on the Cost of Debt: International Evidence," Finance Working Papers 15-12/2013, School of Business Administration, American University of Sharjah.
- Pham, Thu Phuong & Westerholm, P. Joakim, 2013. "A survey of research into broker identity and limit order book," Working Papers 17212, University of Tasmania, School of Economics and Finance, revised 16 Oct 2013.
- Kedia, Simi & Zhou, Xing, 2014. "Informed trading around acquisitions: Evidence from corporate bonds," Journal of Financial Markets, Elsevier, vol. 18(C), pages 182-205.
- Ron Alquist, 2008.
"How Important Is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange,"
08-47, Bank of Canada.
- Alquist, Ron, 2010. "How important is liquidity risk for sovereign bond risk premia? Evidence from the London stock exchange," Journal of International Economics, Elsevier, vol. 82(2), pages 219-229, November.
- Nejadmalayeri, Ali & Nishikawa, Takeshi & Rao, Ramesh P., 2013. "Sarbanes-Oxley Act and corporate credit spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2991-3006.
- Gökhan Cebiroglu & Ulrich Horst, 2012. "Hidden Liquidity: Determinants and Impact," SFB 649 Discussion Papers SFB649DP2012-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Schultz, Paul, 2012. "The market for new issues of municipal bonds: The roles of transparency and limited access to retail investors," Journal of Financial Economics, Elsevier, vol. 106(3), pages 492-512.
- Cici, Gjergji & Gibson, Scott & Gunduz, Yalin & Merrick, John J., 2013. "Market transparency and the marking precision of bond mutual fund managers," CFR Working Papers 13-07, University of Cologne, Centre for Financial Research (CFR).
- Stephan Lauermann & Gábor Virág, 2012. "Auctions in Markets: Common Outside Options and the Continuation Value Effect," American Economic Journal: Microeconomics, American Economic Association, vol. 4(4), pages 107-30, November.
- Loon, Yee Cheng & Zhong, Zhaodong Ken, 2014. "The impact of central clearing on counterparty risk, liquidity, and trading: Evidence from the credit default swap market," Journal of Financial Economics, Elsevier, vol. 112(1), pages 91-115.
- Billett, Matthew T. & Jiang, Zhan & Lie, Erik, 2010. "The effect of change-in-control covenants on takeovers: Evidence from leveraged buyouts," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 1-15, February.
- Ronen, Tavy & Zhou, Xing, 2013. "Trade and information in the corporate bond market," Journal of Financial Markets, Elsevier, vol. 16(1), pages 61-103.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.