Interdealer Price Dispersion and Intermediary Capacity

Andrea Eisfeldt, Bernard Herskovic and Shuo Liu

No 32998, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Intermediation capacity varies across dealers, and as a result, misallocation of credit risk reduces the risk-bearing capacity of the dealer sector and increases effective market-level risk aversion. When the efficient reallocation of credit risk within the dealer sector is impaired, interdealer price dispersion increases. Empirically, when interdealer price dispersion increases, bond prices decrease. Interdealer price dispersion explains a substantial portion of bond yield spread changes, the cross-section of bond returns, and the changes in the basis between bond spread and fair-value spreads. We conclude interdealer frictions reduce the risk-bearing capacity of intermediaries and are crucial for intermediary bond pricing.

JEL-codes: G12 G20 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-upt
Note: AP
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32998.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
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:nbr:nberwo:32998

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32998
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().