We empirically study whether systematic over-the-counter (OTC) market frictions drive the large unexplained common factor in yield spread changes. Using transaction data on U.S. corporate bonds, we find that marketwide inventory, search, and bargaining frictions explain 23.4% of the variation of the common component. Systematic OTC frictions thus substantially improve the explanatory power of yield spread changes and account for one-third of their total explained variation. Search and bargaining frictions combined explain more in the common dynamics of yield spread changes as inventory frictions. Our findings support the implications of leading theories of intermediation frictions in OTC markets.

Over-the-counter market frictions and yield spread changes

Nagler, Florian
2019

Abstract

We empirically study whether systematic over-the-counter (OTC) market frictions drive the large unexplained common factor in yield spread changes. Using transaction data on U.S. corporate bonds, we find that marketwide inventory, search, and bargaining frictions explain 23.4% of the variation of the common component. Systematic OTC frictions thus substantially improve the explanatory power of yield spread changes and account for one-third of their total explained variation. Search and bargaining frictions combined explain more in the common dynamics of yield spread changes as inventory frictions. Our findings support the implications of leading theories of intermediation frictions in OTC markets.
2019
2019
Friewald, Nils; Nagler, Florian
File in questo prodotto:
File Dimensione Formato  
paper.pdf

non disponibili

Tipologia: Documento in Pre-print (Pre-print document)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 668.38 kB
Formato Adobe PDF
668.38 kB Adobe PDF   Visualizza/Apri
confirmation-jf.pdf

non disponibili

Tipologia: Allegato per valutazione Bocconi (Attachment for Bocconi evaluation)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 116.39 kB
Formato Adobe PDF
116.39 kB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4012631
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 33
  • ???jsp.display-item.citation.isi??? 29
social impact