Relationship Trading in OTC Markets

Terrence Hendershott, Dan Li, Dmitry Livdan and Norman Schürhoff
Additional contact information
Terrence Hendershott: University of California
Dan Li: Federal Reserve Board
Norman Schürhoff: University of Lausanne, Swiss Finance Institute, and Centre for Economic Policy Research (CEPR)
Authors registered in the RePEc Author Service: Norman Schuerhoff

No 17-30, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We examine the network of trading relations between insurers and dealers in the over-the-counter corporate bond market. Comprehensive regulatory data shows that many insurers use only one dealer while the largest insurers have networks of up to forty dealers. Large insurers receive better prices than small insurers. However, execution costs are a non-monotone function of the network size, increasing once the network size exceeds 20 dealers. To understand these facts we build a model of decentralized trade in which insurers trade off the benefits of repeat business against dealer competition. The model can quantitatively fit the distribution of insurers' network sizes and how prices depend on insurers' size.

Keywords: Over-the-counter market; corporate bond; trading cost; liquidity; decentralization; financial network (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2017-12
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051859 (application/pdf)

Related works:
Working Paper: Relationship Trading in OTC Markets (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1730

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().