Does Dodd-Frank affect OTC transaction costs and liquidity? Evidence from real-time CDS trade reports

Yee Cheng Loon and Zhaodong Zhong

Journal of Financial Economics, 2016, vol. 119, issue 3, 645-672

Abstract: This paper examines transaction costs and liquidity in the index CDS market by matching intraday quotes to real-time trade reports made available through the Dodd-Frank reforms. We find that the average relative effective spread is 0.27% of price level or 2.73% of CDS spread. Dodd-Frank does affect transaction costs and liquidity. Liquidity improves after the commencement of public dissemination of OTC derivatives trades. Moreover, cleared trades, trades executed on exchange-like venues, end-user trades, and bespoke trades exhibit lower trading costs, price impact, and price dispersion. These findings improve our understanding of the OTC derivatives market that is undergoing fundamental changes.

Keywords: Dodd-Frank Act; Over-the-counter markets; Liquidity; Real-time trade reporting; Credit default swaps (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G18 G28 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (52)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:119:y:2016:i:3:p:645-672

DOI: 10.1016/j.jfineco.2016.01.019

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