This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Financial Intermediation and the Costs of Trading in an Opaque Market

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Richard C. Green (Tepper School of Business, Carnegie Mellon University)
Burton Hollifield (Tepper School of Business, Carnegie Mellon University)
Norman Schürhoff (HEC, University of Lausanne and FAME)

Additional information is available for the following registered author(s):

Abstract

Municipal bonds trade in opaque, decentralized broker-dealer markets in which price information is costly to gather. Whether dealers in such a market operate competitively is an empirical issue, but a difficult one to study. Data in such markets is generally not centrally recorded. We analyze a comprehensive database of all trades between broker-dealers in municipal bonds and their customers. The data is only released to the public with a substancial lag, and thus the market was relativela opaque to the traders themselves during our sample period. We find that dealers earn lower average markups on larger trades, even though larger trades lead the dealers to bear more risk of losses. We formulate and estimate a simple structural bargaining model that allows us to estimate mesures of dealer bargaining power and it relate it to the characteristics of the trades. The results suggest dealers exercise substancial market power. Our mesures of market power decrease in trade size and increase in variables that indicate the complexity of the trade for the dealer.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://www.swissfinanceinstitute.ch/rp130.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp130.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:fam:rpseri:rp130

Contact details of provider:
Postal: 40 bd. du Pont d'Arve, Case postale 3, CH - 1211 Geneva 4
Phone: 41 22 / 312 09 61
Fax: 41 22 / 312 10 26
Web page: http://www.swissfinanceinstitute.ch
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Marilyn Barja).

Related research
Keywords: Municipal Bonds; Fixed Income Dealer; Transaction Costs; Liquidity; Transparency; Market Power;

Other versions of this item:

Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

This paper has been announced in the following NEP Reports:

Cited by:
(explanations, 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.)
  1. José Ramón Martínez-Resano, 2005. "Size and heterogeneity matter. A microstructure-based analysis of regulation of secondary markets for governments bonds," Banco de España Occasional Papers 0501, Banco de España. [Downloadable!]
  2. 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. [Downloadable!]
    Other versions:
  3. Reitz, Stefan & Schmidt, Markus A. & Taylor, Mark P., 2009. "Financial intermediation and the role of price discrimination in a two-tier market," Discussion Paper Series 1: Economic Studies 2009,13, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  4. Ricardo Lagos & Guillaume Rocheteau, 2008. "Liquidity in asset markets with search frictions," Staff Report 408, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. Natasha Khan, 2007. "Impact of Electronic Trading Platforms on the Brokered Interdealer Market for Government of Canada Benchmark Bonds," Working Papers 07-5, Bank of Canada. [Downloadable!]
  6. Taylor, Mark P. & Schmidt, Markus & Reitz, Stefan, 2007. "End-user order flow and exchange rate dynamics," Discussion Paper Series 1: Economic Studies 2007,05, Deutsche Bundesbank, Research Centre. [Downloadable!]
  7. Biais, Bruno & Declerck, Fany, 2007. "Liquidity, Competition & Price Discovery in the European Corporate Bond Market," IDEI Working Papers 475, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  8. Dunne, Peter & Hau, Harald & Moore, Michael, 2008. "A Tale of Two Platforms: Dealer Intermediation in the European Sovereign Bond Market," CEPR Discussion Papers 6969, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Andrew Ang & Vineer Bhansali & Yuhang Xing, 2008. "Taxes on Tax-Exempt Bonds," NBER Working Papers 14496, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Antonio Díaz, 2009. "Retail Investors and the Trading of Treasury Securities," Journal of Financial Services Research, Springer, vol. 36(1), pages 45-63, August. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? Over five million full texts a year are downloaded through IDEAS.

This page was last updated on 2009-11-19.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.