OTC discount

Calebe de Roure, Emanuel Mönch, Loriana Pelizzon () and Michael Schneider
Authors registered in the RePEc Author Service: Emanuel Moench

No 298, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We document a sizable OTC discount in the interdealer market for German sovereign bonds where exchange and over-the-counter trading coexist: the vast majority of OTC prices are favorable compared to exchange quotes. This is a challenge for theories of OTC markets centered around search-and-bargaining frictions but consistent with models of hybrid markets based on information frictions. We find support for this explanation. Distinguishing between bilateral and broker-intermediated OTC trades, differences in OTC discount across protocols are consistent with their relative informedness. Within each protocol, the difference in OTC discount is explained not only by information but also by search-and-bargaining frictions.

Keywords: Market Microstructure; Hybrid Markets; Venue Choice; Interdealer Brokerage; Fixed-Income; OTC Markets; Search Frictions; Information Frictions (search for similar items in EconPapers)
JEL-codes: D4 D47 G1 G14 G24 (search for similar items in EconPapers)
Date: 2021, Revised 2021
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Working Paper: OTC discount (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:298

DOI: 10.2139/ssrn.3744758

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