Size Discount and Size Penalty: Trading Costs in Bond Markets

Gabor Pinter, Chaojun Wang and Junyuan Zou

The Review of Financial Studies, 2024, vol. 37, issue 7, 2156-2190

Abstract: We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for client identity (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation, is larger for corporate bonds, during major macroeconomic surprises and during COVID-19. These differences are larger among more sophisticated clients, consistent with information-based theories.

Keywords: G12; G14; G2 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Size discount and size penalty: trading costs in bond markets (2022)
Working Paper: Size Discount and Size Penalty Trading Costs in Bond Markets (2021)
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