OTC discount

  • We document a sizable OTC discount in the interdealer market for German sovereign bonds where exchange and over-the-counter trading coexist: the vastmajority of OTC prices are favorable with respect to exchange quotes. This is a challenge for theories of OTC markets centered around search frictions but consistent with models of hybrid markets based on information frictions. We show empiricallythat proxies for both frictions determine variation in the discount, which is largely passed on to customers. Dealers trade on the exchange for immediacy and via brokers for opacity and anonymity, highlighting the complementary roles played by the di↵erent protocols.

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Author:Calebe de RoureORCiDGND, Emanuel MönchGND, Loriana PelizzonORCiDGND, Michael SchneiderGND
Parent Title (English):SAFE working paper series ; No. 298
Series (Serial Number):SAFE working paper (298)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2020
Year of first Publication:2020
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/12/08
Tag:Fixed-Income; Hybrid Markets; Information Frictions; Interdealer Brokerage; Market Microstructure; OTC Markets; Search Frictions; Venue Choice
Issue:December 7, 2020
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht