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Transparency and Liquidity in the Structured Product Market

Author

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  • Nils Friewald
  • Rainer Jankowitsch
  • Marti G. Subrahmanyam

Abstract

We use a unique data set from the Trade Reporting and Compliance Engine (TRACE) to study liquidity effects in the U.S. structured product market. Our main contribution is the analysis of the relation between accuracy in measuring liquidity and the level of detail of the trading data employed. We find evidence that, in general, liquidity measures that use dealer-specific information can be efficiently proxied by means of measures that use less detailed information. However, when the level of trading activity in individual securities or overall market activity is low, measures based on more detailed trading data permit a more precise assessment of liquidity. These results provide us with a better understanding of the information contained in disseminated OTC trading data, in general.

Suggested Citation

  • Nils Friewald & Rainer Jankowitsch & Marti G. Subrahmanyam, 2017. "Transparency and Liquidity in the Structured Product Market," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 7(2), pages 316-348.
    • Handle: RePEc:oup:rasset:v:7:y:2017:i:2:p:316-348.
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    File URL: http://hdl.handle.net/10.1093/rapstu/rax010
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    Cited by:

    1. Gündüz, Yalin & Ottonello, Giorgio & Pelizzon, Loriana & Schneider, Michael & Subrahmanyam, Marti G., 2018. "Lighting up the dark: Liquidity in the German corporate bond market," SAFE Working Paper Series 230, Leibniz Institute for Financial Research SAFE.
    2. Han, Song & Huang, Alan Guoming & Kalimipalli, Madhu & Wang, Ke, 2022. "Information and liquidity of over-the-counter securities: Evidence from public registration of Rule 144A bonds," Journal of Financial Markets, Elsevier, vol. 59(PB).
    3. Camilleri, Silvio John & Galea, Francelle, 2019. "The Determinants of Securities Trading Activity: Evidence from four European Equity Markets," MPRA Paper 95298, University Library of Munich, Germany.
    4. Babus, Ana & Hachem, Kinda, 2023. "Markets for financial innovation," Journal of Economic Theory, Elsevier, vol. 208(C).
    5. Aramonte, Sirio & Szerszeń, Paweł J., 2020. "Cross-market liquidity and dealer profitability: Evidence from the bond and CDS markets," Journal of Financial Markets, Elsevier, vol. 51(C).
    6. Haoyang Liu & Zhaogang Song & James Vickery, 2021. "Defragmenting Markets: Evidence from Agency MBS," Working Papers 21-25, Federal Reserve Bank of Philadelphia.
    7. Nicola Fusari & Wei Li & Haoyang Liu & Zhaogang Song, 2022. "Asset Pricing with Cohort‐Based Trading in MBS Markets," Journal of Finance, American Finance Association, vol. 77(6), pages 3249-3287, December.

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