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The Microstructure of the Bond Market in the 20th Century

Author

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  • Bruno Biais

    (HEC Paris)

  • Richard Green

Abstract

Bonds are traded in opaque and fragmented over-the-counter markets. Is there something special about bonds precluding transparent limit-order markets? Historical experience suggests this is not the case. Before WWII, there was an active market in corporate and municipal bonds on the NYSE. Activity dropped dramatically, in the late 1920s for municipals and in the mid 1940s for corporate, as trading migrated to the over-the-counter market. Average trading costs in municipal bonds on the NYSE were half as large in 1926-1927 as they are today over the counter. Trading costs in corporate bonds for small investors in the 1940s were as low or lower than they are now. The difference in transactions costs likely reflects the differences in market structures, since underlying technological changes have likely reduced costs of matching buyers and sellers. (Copyright: Elsevier)

Suggested Citation

  • Bruno Biais & Richard Green, 2019. "The Microstructure of the Bond Market in the 20th Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 250-271, July.
    • Handle: RePEc:red:issued:18-278
    DOI: 10.1016/j.red.2019.01.003
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    More about this item

    Keywords

    Bond markets; Corporate bonds; Municipal bonds; Limit order book; Liquidity; Bid ask spread;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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