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Quote Competition in Corporate Bonds

Terrence Hendershott, Dan Li, Dmitry Livdan, Norman Schürhoff and Kumar Venkataraman
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Terrence Hendershott: University of California, Berkeley - Haas School of Business
Dan Li: Board of Governors of the Federal Reserve System
Norman Schürhoff: Swiss Finance Institute - HEC Lausanne
Kumar Venkataraman: Southern Methodist University (SMU) - Finance Department

Authors registered in the RePEc Author Service: Norman Schuerhoff

No 22-70, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using data on indicative quotes dealers provide to clients, we establish empirical relationships regarding quote competition in the corporate bond market. Market-wide higher quoting activity is associated with greater trading volume and lower trading costs. At the dealer level, quoting dealers attract order flow with more and better quotes attracting more volume. These effects are larger when uncertainty is higher in terms of lower credit ratings and higher volatility, including the onset of Covid-19. Quote competition for order flow is associated with improved execution as clients receive better prices when more dealers quote and when clients trade with better quoting dealers. Our results are consistent with quote competition playing an important role in corporate bond trading.

Keywords: Pretrade transparency; quotes; corporate bonds; OTC markets; order flow competition (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2022-09
New Economics Papers: this item is included in nep-mst
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Handle: RePEc:chf:rpseri:rp2270