Working Paper: NBER ID: w19417
Authors: Paul Asquith; Thom Covert; Parag Pathak
Abstract: In July 2002, FINRA began mandatory dissemination of price and volume information for corporate bond trades. This paper, using recently released data, measures transparency’s effect on trading activity and costs for the entire corporate bond market. Even though trading costs decrease significantly across all types of bonds, trading activity does not increase and, by one measure, decreases. Transparency affects high-yield bonds differently than investment grade bonds. High-yield bonds have the largest decrease in trading activity, 71.1%, and in trading costs, 22.9%. High-yield bonds also disproportionately contribute to the estimated reduction in total trading costs of $600 million a year.
Keywords: transparency; corporate bonds; trading costs; FINRA; TRACE
JEL Codes: D47; G14; G18; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduction in trading costs (F12) | reduction in number of trades (F19) |
| TRACE (Y60) | reduction in the number of trades (F19) |
| TRACE (Y60) | reduction in trading costs (F12) |
| TRACE (Y60) | decrease in trading activity for high-yield bonds (G12) |
| TRACE (Y60) | increase in average trade size for phase 3b bonds (G15) |