E-Book, Englisch, Band 60, 142 Seiten, eBook
Reihe: ebs-Forschung, Schriftenreihe der EUROPEAN BUSINESS SCHOOL Schloß Reichartshausen
Flögel The Microstructure of European Bond Markets
2006
ISBN: 978-3-8350-9268-6
Verlag: Deutscher Universitätsverlag
Format: PDF
Kopierschutz: 1 - PDF Watermark
Organization, Price Formation, and Cost of Liquidity
E-Book, Englisch, Band 60, 142 Seiten, eBook
Reihe: ebs-Forschung, Schriftenreihe der EUROPEAN BUSINESS SCHOOL Schloß Reichartshausen
ISBN: 978-3-8350-9268-6
Verlag: Deutscher Universitätsverlag
Format: PDF
Kopierschutz: 1 - PDF Watermark
Based on unique datasets for German federal securities, EMU government bonds and Euro corporate bonds Volker Flögel analyzes the distinctive features of multiple dealer markets in general and bond markets in particular. He focuses on the organizational structure of the market for German federal securities, the interaction between the interdealer and the customer-dealer market for EMU government bonds, and the cost of liquidity for Euro corporate bonds.
Dr. Volker Flögel promovierte bei Prof. Dr. Lutz Johanning am Stiftungslehrstuhl Asset Management der European Business School, Oestrich-Winkel. Er ist derzeit als Portfolio Manager für die Union PanAgora Asset Management GmbH, Frankfurt am Main, tätig.
Zielgruppe
Research
Weitere Infos & Material
1;Foreword;6
2;Acknowledgements;8
3;Contents;10
4;List of Figures;12
5;List of Tables;14
6;1 Introduction;16
6.1;1.1 Motivation;16
6.2;1.2 Overview and Organization;18
7;2 The Organizational Structure of the Secondary Market for Federal Securities: Historically grown! Economically justified?;22
7.1;2.1 Introduction;22
7.2;2.2 Theoretical Background;24
7.3;2.3 Organizational Structure of the Secondary Market for Federal Securities;26
7.4;2.4 Hypotheses;30
7.5;2.5 Data and Descriptive Statistics;36
7.6;2.6 Customer-Dealer Market;39
7.7;2.7 Interdealer Market;44
7.8;2.8 Conclusion;51
8;3 Interdealer versus Customer-Dealer Sphere: Information Processing in Decentralized Multiple-Dealership Markets;60
8.1;3.1 Introduction;60
8.2;3.2 Markets and Hypotheses;63
8.3;3.3 Methodology;66
8.4;3.4 Practical Issues;72
8.5;3.5 Data and Descriptive Statistics;75
8.6;3.6 Price Discovery in European Government Bond Markets;79
8.7;3.7 Price Discovery and Liquidity;88
8.8;3.8 Conclusion;100
9;4 Institutional Trading Costs in European Corporate Bond Markets;104
9.1;4.1 Introduction;104
9.2;4.2 Literature Review;109
9.3;4.3 The Market for Corporate Bonds;111
9.4;4.4 Data and Descriptive Statistics;112
9.5;4.5 Methodology and General Results;118
9.6;4.6 Possible Determinants of the Price Impact;120
9.7;4.7 Determinants of the Price Impact for Corporate Bonds - Regression Results and Robustness Checks;126
9.8;4.8 The Costs of Trading Corporate Bonds and Stocks - A Comparison;137
9.9;4.9 Conclusion;142
10;5 Summary, Conclusion, and Further Research;146
10.1;5.1 Summary and Conclusions;146
10.2;5.2 Further Research;148
11;References;150
The Organizational Structure of the Secondary Market for Federal Securities: Historically grown! Economically justified?.- Interdealer versus Customer-Dealer Sphere: Information Processing in Decentralized Multiple-Dealership Markets.- Institutional Trading Costs in European Corporate Bond Markets.- Summary, Conclusion, and Further Research.
5 Summary, Conclusion, and Further Research (S. 131-132)
5.1 Summary and Conclusions
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. Part 2 analyzes for the first time the phenomenon of the coexistence of several trading segments in the interdealer as well as the customer-dealer market. In the secondary market for German federal securities, we observe over decades grown onand off-exchange market structures and raise the question whether these can be justified economically, or whether manifested institutional conditions conserve the historically grown market structure.
The three existing parallel trading segments - exchange trading, bilateral OTC trading, and brokered OTC trading - exhibit substantial differences regarding the price formation mechanism and the anonymity of the counterparties. Therefore our initial hypothesis is that each trading mechanism fulfills its own function for the market participants and attracts different transaction desires. We obtain significant empirical results, indicating that the three different trading possibilities are not seen as interchangeable trading segments by the market participants. Instead, each secondary market segment satisfies different transaction needs.
In summary, our analysis shows that the prevailing structure of the secondary market for German federal securities with several differently organized trading segments is justified on the basis of economic considerations. Institutional conditions do not seem to be the main cause for the existence of the different trading segments. For the interdealer market for German federal securities it can be assumed that, in future, the proportion of bilateral OTC transactions will still continue to increase, particularly debited to the brokered OTC transactions. This is because of the progressive development and dissemination of electronic trading systems.
The forecasted loss of the importance of independent brokers working on a commission basis relies on the observation that electronic trading systems exist in the interdealer market in the meantime, which make an anonymous bilateral trade for the market participants possible. Since they have also lost a crucial competitive advantage with the loss of the unique position as anonymity provider, we assume it already came to a reduction of the brokered OTC trades and this development will continue. The potential of the exchange trading is limited to transactions with low absolute trading volumes due to its organization as auction market.
Higher trade volumes at the exchange might primarily be the result of the activities of the German Bundesbank traditionally implemented over the German exchanges. Without the daily market management operations and the resulting daily exchange trading of the German Bundesbank as a contractor for institutional market participants, exchange members would presumably use the exchange floor only as a trading platform for retail orders and institutional transactions with very small trade volume. The third part of the thesis studies the short-run price dynamics between the interdealer market and the customer-dealer market. The sample comprises euro benchmark government bonds traded on EuroMTS. Thereby, the focus is on two questions. Which market contributes more to the price discovery? Is the share of the price contribution related to security characteristics?
