The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market
Thom Covert and
No 19417, NBER Working Papers from National Bureau of Economic Research, Inc
In July 2002, FINRA began mandatory dissemination of price and volume information for corporate bond trades. This paper, using recently released data, measures transparency’s effect on trading activity and costs for the entire corporate bond market. Even though trading costs decrease significantly across all types of bonds, trading activity does not increase and, by one measure, decreases. Transparency affects high-yield bonds differently than investment grade bonds. High-yield bonds have the largest decrease in trading activity, 71.1%, and in trading costs, 22.9%. High-yield bonds also disproportionately contribute to the estimated reduction in total trading costs of $600 million a year.
JEL-codes: D47 G14 G18 L51 (search for similar items in EconPapers)
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