Adverse Selection and the Microstructure of the U.S. Corporate Bond Market

2016 ◽  
Author(s):  
Alessio Ruzza
Keyword(s):  
Adverse Selection ◽  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
The U.S

Liquidity Patterns in the U.S. Corporate Bond Market

2015 ◽  
Author(s):  
Stephanie Heck ◽  
D. Margaritis ◽  
Aline Muller
Keyword(s):  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
The U.S

scholarly journals Enhancing bank transparency: What role for the supervision authority?

2009 ◽  
Vol 56 (4) ◽  
pp. 435-452
Author(s):  
Francesco Giuli ◽  
Marco Manzo
Keyword(s):  
Adverse Selection ◽  
Necessary Conditions ◽  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
The Core ◽  
Delegated Monitoring ◽  
Credit Worthiness ◽  
Adverse Selection Problem ◽  
Core Problem

We apply a three-tier hierarchical model of regulation, developed along the lines of Laffont and Tirole (1993), to an adverse selection problem in the corporate bond market. The bank brings the bonds to the market and informs the potential buyers about the bond risks; a unique benevolent public authority aims at maximising investors' welfare. The main goal is to investigate whether this unique authority is able to fully inform the market on a firm's true credit worthiness when banks, in order to recover doubtful credits, favour the placement of bonds issued by levered firms by concealing their true risk. By establishing the necessary conditions that allow optimal sanctions to produce the first best equilibrium, we show that the core problem of adverse selection in the corporate bond market does not lie so much in the benevolence of the delegated monitoring system, but rather in the possibility of affecting and sanctioning a firm's behavior.

scholarly journals Markets: Transparency and the Corporate Bond Market

2008 ◽  
Vol 22 (2) ◽  
pp. 217-234 ◽  
Author(s):  
Hendrik Bessembinder ◽  
William Maxwell
Keyword(s):  
Corporate Bonds ◽  
Bond Market ◽  
National Association ◽  
Corporate Bond ◽  
Transaction Data ◽  
Corporate Bond Market ◽  
The Public ◽  
The Impact ◽  
The U.S ◽  
Trade Press

For decades, corporate bonds primarily traded in an opaque environment. Quotations, which indicate prices at which dealers are willing to transact, were available only to market professionals, most often by telephone. Prices at which bond transactions were completed were not made public. The U.S. corporate bond market became much more transparent with the introduction of the Transaction Reporting and Compliance Engine (TRACE) in July 2002. Beginning that date, bond dealers were required to report all trades in publicly issued corporate bonds to the National Association of Security Dealers, which in turn made transaction data available to the public. In this paper, we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market. We review how TRACE has affected the costs that corporate bond investors paid to bond dealers for their transactions. We canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market

scholarly journals Moral Hazard Effects of Corporate Bond Guarantee Purchases: Empirical Evidence from China

2018 ◽  
Vol 10 (5(J)) ◽  
pp. 100-115
Author(s):  
Xueying Zhang ◽  
Shansheng Gao ◽  
Jian Jiao
Keyword(s):  
Moral Hazard ◽  
Empirical Evidence ◽  
Adverse Selection ◽  
Credit Rating ◽  
Bond Market ◽  
Corporate Bond ◽  
Evidence Based ◽  
Corporate Bond Market ◽  
Selection Of ◽  
Better Than

This study examines corporate bond guarantees by developing a theoretical model that decomposes the overall impact of a guarantee into signalling and incentive effects and presenting empirical evidence based on data from China’s corporate bond market. Our empirical research yields considerable evidence for the effects we posit in the model and provides some important insights into the problems of adverse selection and moral hazard in China’s bond market. The empirical evidence shows that the bond issuer with lower credit rating are more willing to purchase a bond guarantee and guaranteed bonds have a higher issue spread yield than those non-guaranteed bonds, even though both have the same bond credit rating. Our findings suggest that moral hazard would be better than adverse selection to explain the self- selection of bond guarantees. Prior to bond issuance credit rating signal provides a mechanism to mitigate information inequality, while bond guarantees relieve information asymmetry afterwards. 

scholarly journals Monetary policy and the corporate bond market: How important is the Fed information effect?

2021 ◽  
Vol 2021 (009) ◽  
pp. 1-37
Author(s):  
Michael Smolyansky ◽  
◽  
Gustavo Suarez ◽  
Keyword(s):  
Monetary Policy ◽  
Bond Market ◽  
Corporate Bond ◽  
Information Effect ◽  
Risky Assets ◽  
Corporate Bond Market ◽  
Market Participants ◽  
Economic Fundamentals ◽  
State Of The Economy ◽  
The U.S

Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanation—known as the "Fed information effect". Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises are predominantly interpreted by market participants as signaling information about the state of the economy.

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