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Quote Competition in Corporate Bonds

Author

Listed:
  • Terrence Hendershott

    (University of California, Berkeley - Haas School of Business)

  • Dan Li

    (Board of Governors of the Federal Reserve System)

  • Dmitry Livdan

    (University of California, Berkeley)

  • Norman Schürhoff

    (Swiss Finance Institute - HEC Lausanne)

  • Kumar Venkataraman

    (Southern Methodist University (SMU) - Finance Department)

Abstract

Using data on indicative quotes dealers provide to clients, we establish empirical relationships regarding quote competition in the corporate bond market. Market-wide higher quoting activity is associated with greater trading volume and lower trading costs. At the dealer level, quoting dealers attract order flow with more and better quotes attracting more volume. These effects are larger when uncertainty is higher in terms of lower credit ratings and higher volatility, including the onset of Covid-19. Quote competition for order flow is associated with improved execution as clients receive better prices when more dealers quote and when clients trade with better quoting dealers. Our results are consistent with quote competition playing an important role in corporate bond trading.

Suggested Citation

  • Terrence Hendershott & Dan Li & Dmitry Livdan & Norman Schürhoff & Kumar Venkataraman, 2022. "Quote Competition in Corporate Bonds," Swiss Finance Institute Research Paper Series 22-70, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2270
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    More about this item

    Keywords

    Pretrade transparency; quotes; corporate bonds; OTC markets; order flow competition;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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