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.
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BFBNIB, FZAB, GIS, IJS, INZLJ, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
In this article, we survey the literature that studies fixed-income trading rules and outcomes, including Treasury securities, corporate and municipal bonds, and structured credit products. We ...compare and contrast the microstructure and regulation of fixed-income markets with equity markets. We highlight the nature of over-the-counter trading in the face of search costs and the associated slow evolution of electronically facilitated intermediation. We discuss the databases available to study fixed-income microstructure, as well as measures and determinants of trading costs, and the important roles dealer networks and limited transparency play. We also highlight unresolved issues.
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CEKLJ, IZUM, KILJ, NUK, PILJ, SAZU, UL, UM, UPUK
Information asymmetry in financial markets relates to the idea that one party to a transaction has better information than the other. Since financial reporting involves the transmission of ...value-relevant enterprise information, the authors investigate whether the quality of reported earnings can contribute to differentially informed financial market participants. Higher information asymmetry is costly as it increases the adverse selection risk for market participants and lowers liquidity. For a large sample of NYSE and NASDAQ firms, they show that poor earnings quality is significantly and incrementally associated with higher information asymmetry, earnings quality disproportionately affects information asymmetry for firms with poor information environments, both innate and discretionary components of earnings quality increase information asymmetry, and poor earnings quality exacerbates the information asymmetry around earnings announcements. Their results suggest that standard-setters' efforts to develop accounting standards that improve earnings quality should contribute to a better information environment for market participants and increase stock liquidity.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
We develop a simple model of the effect of public transaction reporting on trade execution costs and test it using a sample of institutional trades in corporate bonds, before and after initiation of ...the TRACE reporting system. Trade execution costs fell approximately 50% for bonds eligible for TRACE transaction reporting, and 20% for bonds not eligible for TRACE reporting, suggesting the presence of a “liquidity externality.” The key results are robust to changes in variables, such as interest rate volatility and trading activity that might also affect execution costs. Market shares and the cost advantage to large dealers decreased post-TRACE. These results indicate that market design can have first-order effects, even for sophisticated institutional customers.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK
We conjecture that macro-level institutions affect equity trading costs through their impact on information risk and investor participation. In a study of trading costs for 412 NYSE-listed American ...Depository Receipts (ADRs) from 44 countries, we find that, after controlling for firm-level determinants of trading costs, effective spreads and price impact of trades are significantly lower for stocks from countries with better ratings for judicial efficiency, accounting standards, and political stability. Trading costs are significantly higher for stocks from French civil law countries than from common law countries. Overall, we conclude that improvements in legal and political institutions will lower the cost of liquidity in financial markets.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, SAZU, UL, UM, UPUK, ZRSKP
We study the behavior of short sellers around earnings restatements. We find that short sellers accumulate positions in restating firms several months in advance of the restatement and subsequently ...unwind these positions after the drop in share price induced by the restatement. The increase in short interest is larger for firms with high levels of accruals prior to restatement. We document that heavily shorted firms experience poor subsequent performance and a higher rate of delisting. Overall, these results suggest that the motive for short selling is, at least in part, related to suspect financial reporting and that short sellers pay attention to information being conveyed by accruals. PUBLICATION ABSTRACT
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CEKLJ, EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
Leukocyte adhesion deficiency (LAD), a disorder of neutrophil function, is characterized by a defect in leukocyte adhesion to the endothelium. Recurrent infections in the skin, soft tissue, gingiva, ...and lungs due to Staphylococcus aureus, Pseudomonas aeruginosa, and Klebsiella sp. are common in these patients. Ecthyma gangrenosum (EG) is an ulcer of skin and subcutaneous tissue with a black eschar and surrounding erythematous halo secondary to a bacterial infection. Here, we report an unusual presentation of LAD type-1 with extensive EG of perineum secondary to Staphylococcus hominis bacteremia treated successfully with combination of granulocyte transfusion and diversion colostomy.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
We examine the Paris Bourse, whose electronic limit order market closely resembles the downstairs markets envisioned by theorists, to test several theoretical predictions regarding upstairs trading. ...We present direct evidence in support of the Grossman (J. Business (1992) 509) prediction that upstairs brokers lower execution costs by tapping into unexpressed liquidity, as actual execution costs upstairs are on average only 20% (35%) as large as they would be if block trades were executed against displayed (displayed and hidden) liquidity in the downstairs limit order book. Consistent with prior analyses, the Paris data also support the Seppi (J. Finance (1990) 73) hypothesis that upstairs brokers certify trades as uninformed. We also find that participants in stocks with less restrictive crossing rules agree to outside-the-quote executions for more difficult trades and at times when downstairs liquidity is lacking. These likely represent trades that could not have been otherwise completed, suggesting that market quality can be enhanced by allowing participants more flexibility to execute blocks at prices outside the quotes.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK
Using audit-trail data from the Toronto Stock Exchange, we find that market makers scale back in unison when market conditions are unfavorable, which contributes to covariation in liquidity supply, ...both within and across stocks. Market conditions lower aggregate participation via their impact on trading profits and risk. Contrary to regulatory view, higher stock volatility is associated with more participation and higher profits, even after controlling for other market conditions, including stock volume. Fragility concerns extend to larger stocks and to active participants. The designated market maker mitigates periodic illiquidity created by synchronous withdrawal of market makers in large and small stocks.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK
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