Does market design contribute to market stability? Indications from a corporate bond exchange during the COVID-19 crisis

Abudy, Menachem (Meni) and Efrat Shust

Journal of Economics and Business, 2023, vol. 123, issue C, No S0148619522000613

Abstract: The common practice worldwide is to trade corporate bonds over the counter (OTC). Conversely, in Israel bonds are traded on an exchange like stocks. We document that during the COVID-19 crisis, trading activity in the Israeli corporate bond market rose sharply despite a significant decrease in liquidity. It occurred without the need for any regulatory intervention. Our findings differ from the evidence on major OTC bond markets, where a liquidity crisis prompt central banks to intervene and ensure market stability. The patterns we document in the Israeli exchange-based bond market resemble to the evidence recorded in exchange-based equity markets worldwide. The findings indicate that trading mechanism may serve as a determinant of financial stability.

Keywords: Bid–ask spreads; Corporate bonds; Liquidity; Trading costs; Trading volume (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619522000613
Full text for ScienceDirect subscribers only

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:eee:jebusi:v:123:y:2023:i:c:s0148619522000613

DOI: 10.1016/j.jeconbus.2022.106105

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().