As part of the series of the „Finance Research Seminar“, VGSF welcomes Adam Zawadowski from Central European University to present his research paper.
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Paper
The Modern Bond Market
We identify a widespread trading practice that mitigates fragmentation in the corporate bond market. On modern electronic platforms, traders request quotes for multiple bonds simultaneously and execute against any subset of the quotes. These List requests account for about 80% of all requests on MarketAxess in 2021–2022. Using List-level identifiers, we show that traders substitute across bonds within each List to mitigate quote uncertainty. This uncertainty is decreasing in the bond’s offering size, an inverse proxy for fragmentation. Substitution is stronger among more fragmented bonds and between those with similar maturities and yields. Substitution within Lists reduces the average spread paid by roughly two-thirds relative to accepting all best quotes.
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