Customer Liquidity Provision: Implications for Corporate Bond Transaction Costs

• 成果类型: Article
• 署名作者: Choi, Jaewon; Huh, Yesol; Shin, Sean Seunghun
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign; Yonsei University; Federal Reserve System - USA; Federal Reserve System Board of Governors; Aalto University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4646
• 发表日期: 2024
• 关键词: corporate bond liquidity; customer liquidity provision; bank regulations and OTC liquidity; insurer liquidity provision

摘要

The convention when calculating corporate bond trading costs is to estimate bid-ask spreads that customers pay, implicitly assuming that dealers always provide liquidity to customers. We show that, contrary to this assumption, customers increasingly provide liquidity following the adoption of post-2008 banking regulations, and thus, conventional bid-ask spread measures underestimate the cost of dealers' liquidity provision. Among large trades wherein dealers use inventory capacity, customers pay 40%-60% wider spreads than before the crisis. Customers' balance-sheet capacity and their trading relationships with dealers are important determinants of customer liquidity provision.