Over-the-Counter Market Liquidity and Securities Lending

Nathan Foley-Fisher, Stefan Gissler and Stephane Verani
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Stefan Gissler: Federal Reserve Board

Review of Economic Dynamics, 2019, vol. 33, 272-294

Abstract: This paper studies how over-the-counter market liquidity is affected by securities lending. We combine micro-data on corporate bond market trades with securities lending transactions and individual corporate bond holdings by U.S. insurance companies. Applying a difference-in-differences empirical strategy, we show that the shutdown of AIG's securities lending program in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds predominantly held by AIG. We also show that an important mechanism behind the decrease in corporate bond liquidity was a shift towards relatively small trades among a greater number of dealers in the interdealer market. (Copyright: Elsevier)

Keywords: Over-the-counter markets; Corporate bonds; Market liquidity; Securities lending; Insurance companies; Broker-dealers (search for similar items in EconPapers)
JEL-codes: G01 G12 G22 G23 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Working Paper: Over-the-counter market liquidity and securities lending (2018)
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DOI: 10.1016/j.red.2019.02.005

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