Informed trading and the dynamics of client-dealer connections in corporate bond markets

No 895, Bank of England working papers from Bank of England

Abstract: Using a unique regulatory dataset with disclosed counterparty identities, we show that clients in corporate bond markets outperform when they trade with more dealers. The effect is stronger for informationally sensitive clients, assets, and during informationally intensive periods including Covid-19. Identifying clients who simultaneously trade in government and corporate bonds reveals that connections have larger and more persistent effects in the corporate bond market. Using a Kyle (1989)-type model, we show that both the degree of inter-dealer competition and the magnitude of private information could explain the strength of the performance-connection relation; we find stronger empirical evidence for an information-based mechanism.

Keywords: Informed trading; corporate bonds; client-dealer connections; inter-dealer competition; Covid-19 (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 G24 (search for similar items in EconPapers)
Pages: 99 pages
Date: 2020-11-27, Revised 2022-01-20
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Informed Trading and the Dynamics of Client-Dealer Connections in Corporate Bond Markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0895

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