Comparing search and intermediation frictions across markets

Gabor Pinter, Semih Üslü and Jean-Charles Wijnandts

No 1283, BIS Working Papers from Bank for International Settlements

Abstract: We develop a two-asset search-and-bargaining model of OTC trading to estimate frictions and welfare losses in the UK government and corporate bond markets. Using transaction-level data and a matched client sample, we find that both trading delays and intermediation frictions are more pronounced in corporate bonds. Welfare losses due to these frictions are 2.4% in government bonds and 5.0% in corporate bonds-driven primarily by trading delays. Using data from the COVID-19 crisis, we find that these losses might more than double during turbulent times, revealing the fragility of the OTC market structure.

Keywords: Search frictions; market power; government bonds; corporate bonds; over-the-counter markets (search for similar items in EconPapers)
JEL-codes: D40 G10 G11 L10 (search for similar items in EconPapers)
Date: 2025-08
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Related works:
Working Paper: Comparing search and intermediation frictions across markets (2022)
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