@article{7b252c0b6f48454290fffdf533e4370b,
title = "Capital Commitment and Illiquidity in Corporate Bonds",
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.",
author = "Hendrik Bessembinder and Stacey Jacobsen and William Maxwell and Kumar Venkataraman",
note = "Funding Information: ∗Hendrik Bessembinder is at the W.P. Carey School of Business, Arizona State University. Stacey Jacobsen, William Maxwell, and Kumar Venkataraman are at the Cox School of Business, Southern Methodist University. We thank seminar participants at Arizona State University, Southern Methodist University, Indiana University, Goethe-University Frankfurt, Board of Governors of the Federal Reserve, Federal Reserve Bank of New York, Bank of Canada, University of Oklahoma, University of Mannheim, University of New South Wales, University of Texas at San Antonio, University of Sydney, Washington State University, University of Washington, Texas A&M University, Louisiana State University, University of Melbourne, and University of Zurich, as well as conference participants at the 2017 Arizona State University Ph.D. Alumni conference, 2016 Lone Star Conference, Notre Dame 2016 Conference on Current Topics in Financial Regulation, 2016 Banque De France-Toulouse School of Economics conference, 2017 Western Finance Association conference, and University of Tennessee Smokey Mountain Finance Conference for their interest and comments. Thanks are also due to Stefan Nagel, an anonymous Associate Editor, two anonymous referees, as well as Indraneel Chakraborty, Michael Goldstein, Steve Joachim, Elliot Levine, Darius Miller, Michael Piwowar, Akhtar Siddique, Erik Sirri, Rex Thompson, James Weston, and Steve Zamsky for their valuable comments. None of the authors received financial support specific to this project. The authors thank the Finance Industry Regulatory Authority (FINRA) for provision of the data and in particular, Alie Diagne, Ola Persson, and Jonathan Sokobin for their support of the study. FINRA screened the paper to ensure that confidential dealer identities were not revealed. Bessembinder, Maxwell, and Jacobsen have no conflicts of interest to report. Venkatara-man is a visiting economist at the Office of Chief Economist at FINRA, and acknowledges financial support for other projects. Funding Information: The authors thank the Finance Industry Regulatory Authority (FINRA) for provision of the data and in particular, Alie Diagne, Ola Persson, and Jonathan Sokobin for their support of the study. FINRA screened the paper to ensure that confidential dealer identities were not revealed. Bessembinder, Maxwell, and Jacobsen have no conflicts of interest to report. Venkataraman is a visiting economist at the Office of Chief Economist at FINRA, and acknowledges financial support for other projects. Publisher Copyright: {\textcopyright} 2018 the American Finance Association",
year = "2018",
month = aug,
doi = "10.1111/jofi.12694",
language = "English (US)",
volume = "73",
pages = "1615--1661",
journal = "Journal of Finance",
issn = "0022-1082",
publisher = "Wiley-Blackwell",
number = "4",
}