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Journal article
Notes on Bonds: Illiquidity Feedback During the Financial Crisis
The Review of financial studies, v 31(8), pp 2983-3018
01 Aug 2018
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
We trace the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis, when bond prices fell more than 6% below more liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flowto longer-horizon investors, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charge for access to their balance sheets in the crisis.
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Details
- Title
- Notes on Bonds: Illiquidity Feedback During the Financial Crisis
- Creators
- David Musto - University of PennsylvaniaGreg Nini - Lebow College of Business Drexel UniversityKrista Schwarz - University of Pennsylvania
- Publication Details
- The Review of financial studies, v 31(8), pp 2983-3018
- Publisher
- Oxford Univ Press
- Number of pages
- 36
- Grant note
- WRDS Wharton School
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Finance
- Web of Science ID
- WOS:000451283800004
- Scopus ID
- 2-s2.0-85056585229
- Other Identifier
- 991019170852804721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Business, Finance
- Economics