Capital Commitment and Illiquidity in Corporate Bonds

Hendrik Bessembinder, Stacey Jacobsen, William Maxwell, Kumar Venkataraman

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

We study trading costs and dealer behavior in U.S. corporate bond markets from 2006 to 2016. Despite a temporary spike during the financial crisis, average trade execution costs have not increased notably over time. However, dealer capital commitment, turnover, block trade frequency, and average trade size decreased during the financial crisis and thereafter. These declines are attributable to bank-affiliated dealers, as nonbank dealers have increased their market commitment. Our evidence indicates that liquidity provision in the corporate bond markets is evolving away from the commitment of bank-affiliated dealer capital to absorb customer imbalances, and that postcrisis banking regulations likely contribute.

Original languageEnglish (US)
Pages (from-to)1615-1661
Number of pages47
JournalJournal of Finance
Volume73
Issue number4
DOIs
StatePublished - Aug 1 2018

Fingerprint

Corporate bonds
Illiquidity
Dealers
Bond market
Financial crisis
Trading costs
Turnover
Block trades
Trade size
Liquidity provision
Imbalance
Execution costs
Banking regulation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Capital Commitment and Illiquidity in Corporate Bonds. / Bessembinder, Hendrik; Jacobsen, Stacey; Maxwell, William; Venkataraman, Kumar.

In: Journal of Finance, Vol. 73, No. 4, 01.08.2018, p. 1615-1661.

Research output: Contribution to journalArticle

Bessembinder, H, Jacobsen, S, Maxwell, W & Venkataraman, K 2018, 'Capital Commitment and Illiquidity in Corporate Bonds', Journal of Finance, vol. 73, no. 4, pp. 1615-1661. https://doi.org/10.1111/jofi.12694
Bessembinder, Hendrik ; Jacobsen, Stacey ; Maxwell, William ; Venkataraman, Kumar. / Capital Commitment and Illiquidity in Corporate Bonds. In: Journal of Finance. 2018 ; Vol. 73, No. 4. pp. 1615-1661.
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