Providing Liquidity in an Illiquid Market: Dealer Behavior in US Corporate Bonds (Summary)

CFA Institute Journal Review  summarizes "Providing Liquidity in an Illiquid Market: Dealer Behavior in US Corporate Bonds," by Michael A. Goldstein and Edith S. Hotchkiss, from the  Journal of Financial Economics , January 2020.

Overview

Investigating market-making activities for infrequently traded US corporate bonds reveals dealers are inclined to quickly find a buyer for the least actively traded bonds to avoid holding them in inventory. In many cases, dealer spreads on the most illiquid bonds are lower than those on the more liquid bonds, contrary to prior research.

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