Lockstep in liquidity: Common dealers and co-movement in bond liquidity

Stefan Gissler

Journal of Financial Markets, 2017, vol. 33, issue C, 1-21

Abstract: In this article, I investigate common dealers in the U.S. corporate bond market as a determinant of co-movement in liquidity. Using regulatory data that identifies counterparties in bond trades, I show that a corporate bond׳s liquidity moves together with other bonds׳ liquidity traded by the same dealers. Turning to the underlying factors of this correlation, a dealer׳s trading activity is predictive of bonds׳ future liquidity. I employ a case study of bonds that are mainly traded by a major dealer that went bankrupt in 2008. One month after the bankruptcy, these bonds were still more illiquid than comparable bonds.

JEL-codes: G12 G24 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:33:y:2017:i:c:p:1-21

DOI: 10.1016/j.finmar.2016.03.006

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