Catálogo de publicaciones - libros

Financial markets have the important role to aggregate and allocate resources and risks in time and space. In order to do design markets that fulfill this role as efficient as possible, it is important to know how financial markets are organized, how they are regulated, how trades are executed and paid for, and finally, what impact these issues have on the price formation. These questions are extensively treated in a field of research called market microstructure.

The secondary market for federal securities is the economically most important and the most liquid spot market segment of European securities markets. In Germany, the organization of federal securities trading in the secondary market has evolved historically through parallel on-and off-exchange (over the counter, OTC) structures. Generally, three differently structured trading possibilities for federal securities can be identified:

This paper empirically analyzes the short-run price dynamics in the European government bond market. One distinguishing feature of bond markets is the coexistence of two different trading environments: a public environment where customers (buy side investors) trade with liquidity providers, and an interdealer environment where liquidity providers trade among themselves. The objective of the statistical analysis is to quantify the contribution of each market to the evolution of a bond2019;s full-information or permanent value. From an economic perspective, these contributions specify how much information is produced in the various markets, which may be related to security and market characteristics. Our analysis particularly addresses the following questions: Which market contributes more to the price discovery — the customer-dealer or the interdealer market? Is the share of the contribution to the price discovery of both markets related to security characteristics? The market for government bonds is especially suited to answer the last question since it includes a wide variety of similar but not identical issues (the issues differ in amount outstanding, maturity, and other characteristics). The question about price discovery, market sphere, and security characteristics could not be fully examined if we were inspecting different markets for a single security.

In the past, researchers have extensively studied transaction costs in equity markets and found that implicit trading costs are economically significant. In contrast, few studies analyze transaction costs for institutional bond trades. Given the importance of worldwide bond markets, this seems surprising. The strong increase in the amount outstanding of euro-denominated bonds after the introduction of the euro exhibited in Figure 4.1 shows the growing importance of European corporate bond markets. But compared to the US, with an amount outstanding of $ 4.9 trillion, the European market is still small. Even though the issuing activity was boosted by the introduction of the euro, the marketability and therefore liquidity of these issues is unexplored. In addition, the market for euro-denominated corporate bonds is still very opaque compared to the US market where the National Association of Securities Dealers (NASD) introduced its Trade Reporting and Compliance Engine (TRACE) on July 1, 2002 to publicly report OTC-transactions in corporate bonds. Edwards, Harris, and Piwowar (2004) and Bessembinder, Maxwell, and Venkataraman (2005) show that the dissemination of information on completed trades leads to a decrease in trading costs and thereby to an increase in liquidity. The European market does not provide any post trade information to its investors and only the parties involved have knowledge on the existence of the trade. As a whole, the European market is comparable to the US market before the introduction of TRACE in terms of transparency, but it is still less mature.

This thesis contains three parts of empirical research on the microstructure of bond markets that are related to the organizational structure as well as the price formation and the cost of liquidity in bond markets.