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Quote Competition in Corporate Bonds

Author

Listed:
  • Hendershott, Terrence
  • Li, Dan
  • Livdan, Dmitry
  • Schürhoff, Norman
  • Venkataraman, Kumar

Abstract

Dealer quotes in corporate bonds, though indicative, lower trading costs and increase trading volume. Dealers offering higher quality quotes attract more order flow and execute trades at favorable prices. Dealers advertise quotes to manage their inventories and attract orders from non-relationship clients. However, quote competition is imperfect; the best quotes often fail to attract orders, and trade-throughs are common. Nevertheless, quote competition is important as clients exploit quotes from other dealers in negotiations, forcing dealers with lower quality quotes to offer price improvements. Quoting is not a zero-sum game, as higher bond-level quoting leads to higher bond-level trading.

Suggested Citation

  • Hendershott, Terrence & Li, Dan & Livdan, Dmitry & Schürhoff, Norman & Venkataraman, Kumar, 2025. "Quote Competition in Corporate Bonds," CEPR Discussion Papers 20205, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20205
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    File URL: https://cepr.org/publications/DP20205
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    More about this item

    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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