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Dealer balance sheets and bond liquidity provision

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  • Adrian, Tobias
  • Boyarchenko, Nina
  • Shachar, Or

Abstract

Do regulations decrease dealer ability to intermediate trades? Using a unique dataset of dealer-bond-level transactions, we link changes in liquidity of individual U.S. corporate bonds to dealers' transaction activity and balance sheet constraints. We show that, prior to the financial crisis, bonds traded by more levered institutions and institutions with investment bank like characteristics were more liquid but this relationship reverses after the financial crisis. In addition, institutions that face more regulations after the crisis both reduce their overall volume of trade and have less ability to intermediate customer trades.

Suggested Citation

  • Adrian, Tobias & Boyarchenko, Nina & Shachar, Or, 2017. "Dealer balance sheets and bond liquidity provision," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 92-109.
    • Handle: RePEc:eee:moneco:v:89:y:2017:i:c:p:92-109
    DOI: 10.1016/j.jmoneco.2017.03.011
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    More about this item

    Keywords

    Bond liquidity; regulation; dealer constraints;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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