Relationship Trading in Over-the-Counter Markets

• 成果类型: Article
• 署名作者: Hendershott, Terrence; Li, Dan; Livdan, Dmitry; Schuerhoff, Norman
• 署名单位: University of California System; University of California Berkeley; Federal Reserve System - USA; University of Lausanne; University of Lausanne; Swiss Finance Institute (SFI)
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12864
• 发表日期: 2020
• 页码: 683-734
• 关键词: bid-ask spreads; adverse selection; asset markets; search; liquidity; COSTS; MODEL; bond; equilibrium; intermediation

摘要

We examine the network of trading relationships between insurers and dealers in the over-the-counter (OTC) corporate bond market. Regulatory data show that one-third of insurers use a single dealer, whereas other insurers have large dealer networks. Execution prices are nonmonotone in network size, initially declining with more dealers but increasing once networks exceed 20 dealers. A model of decentralized trade in which insurers trade off the benefits of repeat business and faster execution quantitatively fits the distribution of insurers' network size and explains the price-network size relationship. Counterfactual analysis shows that regulations to unbundle trade and nontrade services can decrease welfare.