IDEAS home Printed from https://ideas.repec.org/p/pur/prukra/1138.html
   My bibliography  Save this paper

Do Differences in Transparency Affect Trading Costs? Evidence from U.S. Corporate, Municipal and Treasury Bond Markets

Author

Listed:
  • Chakravarty, Sugato
  • Sarkar, Asani

Abstract

We compare trading costs in the transparent U.S. Treasury bond market with the less transparent U.S. corporate and municipal bond markets, based on newly available transaction data. We estimate that the mean bid-ask spread per $100 par value is 23 cents for municipal bonds, 21 cents for corporate bonds and 11 cents for Treasury bonds. But after controlling for interest rate risk, credit risk and trading activity, we find that the bid-ask spread is not significantly different between the three markets. Our findings suggest that markets with different levels of transparency may nevertheless have similar trading costs. Finally, we examine why institutions sometimes trade without dealers, and find that the relative volume of directly negotiated trades in a bond decreases in its bid-ask spread, interest rate risk and adverse selection risk and increases in its activity level.

Suggested Citation

  • Chakravarty, Sugato & Sarkar, Asani, 2000. "Do Differences in Transparency Affect Trading Costs? Evidence from U.S. Corporate, Municipal and Treasury Bond Markets," Purdue University Economics Working Papers 1138, Purdue University, Department of Economics.
  • Handle: RePEc:pur:prukra:1138
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, pages 2-20.
    2. P. A. Diamond, 1982. "Money in Search Equilibrium," Working papers 297, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Li, Yiting, 1999. "Money and Middlemen in an Economy with Private Information," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 1-12, January.
    4. Shouyong Shi, 1997. "Money and specialization," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 99-133.
    5. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-141, February.
    6. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    7. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-429, July.
    8. Cosimano, Thomas F, 1996. "Intermediation," Economica, London School of Economics and Political Science, vol. 63(249), pages 131-143, February.
    9. S. Rao Aiyagari & Neil Wallace, 1991. "Existence of Steady States with Positive Consumption in the Kiyotaki-Wright Model," Review of Economic Studies, Oxford University Press, pages 901-916.
    10. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
    11. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, vol. 52(1), pages 1-20, January.
    12. Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, pages 20-26.
    13. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213.
    14. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
    15. Wright, Randall, 1995. "Search, evolution, and money," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 181-206.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    U.S. bond markets ; trading costs;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pur:prukra:1138. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Krannert PHD). General contact details of provider: http://edirc.repec.org/data/kspurus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.