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Dealer Inventory Short Interest And Price Efficiency In The Corporate Bond Market
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Book Synopsis Dealer Inventory, Short Interest and Price Efficiency in the Corporate Bond Market by : Antje Berndt
Download or read book Dealer Inventory, Short Interest and Price Efficiency in the Corporate Bond Market written by Antje Berndt and published by . This book was released on 2019 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose an equilibrium model of over-the-counter corporate bond trading with short selling, asymmetric information and dealer inventory costs. The model predicts that higher inventory costs impose implicit short-sale constraints on informed investors and are thus associated with lower price efficiency. We construct bond-level proxies for inventory costs and provide empirical evidence in support of the model's prediction. Our findings suggest that tighter post-GFC regulation may have had unintended consequences for corporate bond market quality.
Book Synopsis The Informational Efficiency of the Corporate Bond Market by : Tavy Ronen
Download or read book The Informational Efficiency of the Corporate Bond Market written by Tavy Ronen and published by . This book was released on 2000 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a unique dataset including daily and hourly high yield bond transactions prices, we examine the informational efficiency of the corporate bond market relative to the market for the underlying stock. In contrast to previous research utilizing weekly or monthly dealer quotes, we find that stocks do not lead bonds in reflecting firm specific information. We further consider the impact of firm specific information on corporate bond prices by examining price behavior around earnings releases and find that this information is quickly incorporated into both bond and stock prices, even at short return horizons. Finally, we find that measures of market quality are no poorer for the bonds in our sample than for the underlying stocks. Our results suggest that the relative informativeness of high yield bond prices is driven largely by the bonds' liquidity rather than the structure of the dealer market for corporate bonds.
Book Synopsis Dealer Inventory and the Cross-Section of Corporate Bond Returns by : Nils Friewald
Download or read book Dealer Inventory and the Cross-Section of Corporate Bond Returns written by Nils Friewald and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inventory models of dealership markets imply that intermediaries reduce their exposure to inventory risk by offering prices different from fundamental values. Therefore, inventory levels should affect asset prices and thus returns. We explore the cross-sectional relation between US corporate bond inventories and returns. Our findings provide strong support for the asset pricing implication of inventory models, that is, the risk-adjusted return of a high-minus-low inventory-sorted portfolio is 21 basis points per week. Furthermore, we examine several drivers of the inventory risk premium; for example, we emphasize the importance of inventory risk sharing in pricing bonds.
Book Synopsis Slow Moving Capital by : Mark Mitchell
Download or read book Slow Moving Capital written by Mark Mitchell and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study three cases in which specialized arbitrageurs lost significant amounts of capital and, as a result, became liquidity demanders rather than providers. The effects on security markets were large and persistent: Prices dropped relative to fundamentals and the rebound took months. While multi-strategy hedge funds who were not capital constrained increased their positions, a large fraction of these funds actually acted as net sellers consistent with the view that information barriers within a firm (not just relative to outside investors) can lead to capital constraints for trading desks with mark-to-market losses. Our findings suggest that real world frictions impede arbitrage capital.
Book Synopsis Bond Markets, Analysis, and Strategies, tenth edition by : Frank J. Fabozzi
Download or read book Bond Markets, Analysis, and Strategies, tenth edition written by Frank J. Fabozzi and published by MIT Press. This book was released on 2021-12-07 with total page 937 pages. Available in PDF, EPUB and Kindle. Book excerpt: The updated edition of a widely used textbook that covers fundamental features of bonds, analytical techniques, and portfolio strategy. This new edition of a widely used textbook covers types of bonds and their key features, analytical techniques for valuing bonds and quantifying their exposure to changes in interest rates, and portfolio strategies for achieving a client’s objectives. It includes real-world examples and practical applications of principles as provided by third-party commercial vendors. This tenth edition has been substantially updated, with two new chapters covering the theory and history of interest rates and the issues associated with bond trading. Although all chapters have been updated, particularly those covering structured products, the chapters on international bonds and managing a corporate bond portfolio have been completely revised. The book covers the basic analytical framework necessary to understand the pricing of bonds and their investment characteristics; sectors of the debt market, including Treasury securities, corporate bonds, municipal bonds, and structured products (residential and commercial mortgage-backed securities and asset-backed securities); collective investment vehicles; methodologies for valuing bonds and derivatives; corporate bond credit risk; portfolio management, including the fundamental and quantitative approaches; and instruments that can be used to control portfolio risk.
Book Synopsis How Do Inventory Costs Affect Dealer Behavior in the US Corporate Bond Market? by : Oliver Randall
Download or read book How Do Inventory Costs Affect Dealer Behavior in the US Corporate Bond Market? written by Oliver Randall and published by . This book was released on 2015 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that dealer behavior in the US corporate bond market is consistent with dealers bearing a time-varying cost of holding inventory. Liquidity is worse when inventory costs increase, especially for bonds with lower credit ratings, customers with lower bargaining power, and larger trades. When inventory costs increase, dealers sell more high yield bonds, but sell less investment grade, suggesting a flight to quality. Inventory costs don't affect dealers' trades immediately unwound in the inter-dealer market, but do affect the rate at which these trades occur, as dealers' willingness and ability to risk-share in the inter-dealer market change.
Book Synopsis The dealer market for United States corporate bonds by : Lori Ann Trawinski
Download or read book The dealer market for United States corporate bonds written by Lori Ann Trawinski and published by . This book was released on 2001 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Middlemen Matter by : Andreas C. Rapp
Download or read book Middlemen Matter written by Andreas C. Rapp and published by . This book was released on 2019 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate bond dealers build up considerable inventories for which they rely on short-term funding. I provide empirical evidence that dealers' inventory financing constraints are a crucial determinant of the costs of their liquidity provision in corporate bond markets. Constructing a unique dataset that links dealer identities with transaction prices, I show that dealer-specific financing constraints (as proxied by their CDS spreads) explain a substantial part of the variation in the inventory cost component of the effective bid-ask spread. Compared to low volatility bonds, the liquidity provision of high volatility bonds is more sensitive to inventory costs, especially during periods of funding stress. Finally, exploiting a quasi-natural experiment, I show that the relaxation of funding constraints through a Federal Reserve emergency credit facility temporarily alleviates liquidity problems among eligible dealers.
Book Synopsis Local Currency Bond Markets - A Diagnostic Framework by : World Bank
Download or read book Local Currency Bond Markets - A Diagnostic Framework written by World Bank and published by International Monetary Fund. This book was released on 2013-07-09 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: In November 2011, the G-20 endorsed an action plan to support the development of local currency bond markets (LCBM). International institutions—the IMF, the World Bank, the EBRD, and the OECD—were asked to draw on their experience to develop a diagnostic framework (DF) to identify general preconditions, key components, and constraints for successful LCBM development. The objective is to provide a tool for analyzing the state of development and efficiency of local currency bond markets. The application of the DF is expected to be flexible, bearing in mind that the potential for LCBM development depends on economic size, financing needs, and stage of economic development.
Book Synopsis The Dealer Market for U.S. Corporate Bonds by : Lori Ann Trawinski
Download or read book The Dealer Market for U.S. Corporate Bonds written by Lori Ann Trawinski and published by . This book was released on 2001 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Europe's Hidden Capital Markets by : Jean-Pierre Casey
Download or read book Europe's Hidden Capital Markets written by Jean-Pierre Casey and published by CEPS. This book was released on 2005 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: Assessing regulatory measures taken at the EU level that impact European bond markets, this book examines the desirability, utility, and feasibility of certain policy measures.
Book Synopsis The Strategic Bond Investor by : Anthony Crescenzi
Download or read book The Strategic Bond Investor written by Anthony Crescenzi and published by McGraw Hill Professional. This book was released on 2002-06-14 with total page 424 pages. Available in PDF, EPUB and Kindle. Book excerpt: A dynamic, equity-style approach to investing in today's bond market "Tony Crescenzi knows bonds and his book proves it. From 'Fedspeak' to Treasury buybacks, The Strategic Bond Investor helps to explain the mysteries of the bond market and even offers tips on how to forecast interest rates. Sign me up—I can always learn something new!"—Bill Gross, Managing Director at Pacific Investment Management Company Bond investing can be every bit as exciting and profitable as "playing the stock market." The Strategic Bond Investor is the first book to approach fixed-income investing from an equity-style perspective. This fast-paced book provides readers with helpful tips, tools, and strategies for tracking market sentiment, spotting market extremes, analyzing volume and liquidity, and dozens of other techniques that wereup until nowlimited primarily to the equity markets. The Strategic Bond Investor reveals a dramatic new approach for using bonds to balance portfolios while grabbing profit opportunities as they present themselves. It represents a new style of bond investing, bold yet risk-conscious, that is long overdue for today's transformed market environment. Investors looking to diversify their portfolios will discover: Key economic releases and how they influence bond prices Popular fixed-income portfolio management strategies Best-performing bonds in a variety of economic circumstances
Book Synopsis Dealer Spreads in the Corporate Bond Market by : Louis H. Ederington
Download or read book Dealer Spreads in the Corporate Bond Market written by Louis H. Ederington and published by . This book was released on 2014 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Utilizing the large subset of trades in which dealers act purely as agents, we decompose dealer spreads in U.S. corporate bond OTC markets into components arising from: 1) dealers' market-making role, and 2) their role as agents for their non-dealer customers. We investigate the determinants of both components. We find that agent-related spreads are large and comparable in magnitude to market-making spreads. In their role as agents, dealers face liquidity-search and customer interface costs, while in their role as market makers they face inventory and asymmetric information costs. Consistent with this, we find that while market-making spreads are strongly correlated with market risk variables, agent-related spreads are not, depending instead on liquidity driven variables. While market-making spreads are inversely related to trade size, agent-related spreads increase with trade size before leveling off and then declining -- possibly indicating that agent-dealers devote lesser search time to relatively smaller trades. While market-making dealer spreads are positively correlated with risk variables, whether trading directly with non-dealer customers or with dealers acting purely as agents, the difference between the former and the latter is negatively correlated with risk variables implying that market-making dealers benefit more from direct interaction with traders when risk and information asymmetry is higher, consistent with dealers deriving information-related benefits from their customer interface. Except for very small trades, explicit transaction costs of non-dealer customers are lower when they trade directly with market-making dealers than when they route trades through a dealer acting purely as an agent. Finally, we show that existing studies have underestimated average overall trading costs in the corporate bond market by conflating the spreads of dealers acting purely as agents with full dealer spreads that include both agent and market making costs. Given our findings on the size and economic determinants of agent-related dealer costs, our results have significant implications for the extensive empirical literature on dealer spreads in other OTC markets.
Book Synopsis Where Did All the Information Go? Trade in the Corporate Bond Market by : Tavy Ronen
Download or read book Where Did All the Information Go? Trade in the Corporate Bond Market written by Tavy Ronen and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines shifting liquidity in the corporate bond market and illustrates how cross market comparisons can lead to misleading inferences regarding market efficiency when liquidity and trading patterns are ignored. For example, when institutional trade dominance and other bond trading features are accounted for, stock leads evidenced in earlier studies are surprisingly reversed. Moreover, bond prices often fully adjust to news before equity market open. Informational advantages are most pronounced during low equity market liquidity and price discovery periods. Finally, dynamic liquidity patterns give rise to lsquo;top bonds', which are those attracting most institutional sized trades after news and are shown to play an important role in the price discovery process. These bonds shift identity over time but exhibit common ex-ante identifiable characteristics.
Book Synopsis Informed Trading and Its Implications for Corporate Bond Pricing by : Xing Zhou
Download or read book Informed Trading and Its Implications for Corporate Bond Pricing written by Xing Zhou and published by . This book was released on 2008 with total page 246 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Short Selling, Trading Activity and Volatility in Corporate Bond Market by : Huu Nhan Duong
Download or read book Short Selling, Trading Activity and Volatility in Corporate Bond Market written by Huu Nhan Duong and published by . This book was released on 2018 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the impact of short selling activity on trading activity and price volatility in the U.S corporate bond market. Consistent with prior literature, we find that investors use short selling as a platform to express their difference of opinions. In addition, we find that the positive relation between short selling activity and price volatility becomes weaker during period when investors' expectations tend to be more homogenous such as the Global Financial Crisis (GFC). More importantly, we show that short selling in the corporate bond market is not simply a substitute to equity short selling and option trading for investors to trade negative news and information against the underlying company. On the contrary, it is an independent conduit for investors to express difference of opinions specific to bond.
Book Synopsis Price Discovery in the Stock and Corporate Bond Markets by : Yifei Mao
Download or read book Price Discovery in the Stock and Corporate Bond Markets written by Yifei Mao and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses intraday U.S. bond transaction and stock quote data to investigate whether corporate bonds lead stocks in price discovery of underlying firm value. I use Hasbrouck's (1995) "information share" approach to determine the relative contribution of corporate bonds to price discovery. Based on a sample of 214 firms, I find that corporate bond markets contribute 12.6% on average to price discovery from 2009 to 2011. Corporate bond market price discovery increases with the riskiness of the underlying firm value, and is related to contemporaneous market conditions. The findings are consistent with the informed trading theory and Merton (1973) model.
