Municipal Bond Liquidity

Harris, Lawrence; Piwowar, Michael S.

doi:10.2139/ssrn.503062

Cited by 32 publications

(26 citation statements)

References 17 publications

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“…Consistent with our results, Schultz (2001) finds that bid-ask spreads are larger for smaller trades and for smaller (institutional) investors in the market for corporate bonds. Furthermore, Green, Hollifield, and Schurhoff (2004) and Harris and Piwowar (2004) find that bid-ask spreads are larger for smaller trades and for more complex instruments in the market for municipal bonds.…”

Section: Empirical Implicationsmentioning

confidence: 98%

Over-the-Counter Markets

Duffie¹,

Gârleanu²,

Pedersen³

2005

Econometrica

1,072

778

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We study how intermediation and asset prices in over-the-counter markets are affected by illiquidity associated with search and bargaining. We compute explicitly the prices at which investors trade with each other, as well as marketmakers' bid and ask prices, in a dynamic model with strategic agents. Bid-ask spreads are lower if investors can more easily find other investors or have easier access to multiple marketmakers. With a monopolistic marketmaker, bid-ask spreads are higher if investors have easier access to the marketmaker. We characterize endogenous search and welfare, and discuss empirical implications. Copyright The Econometric Society 2005.

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Section: Empirical Implicationsmentioning

confidence: 98%

Over-the-Counter Markets

Duffie¹,

Gârleanu²,

Pedersen³

2005

Econometrica

1,072

778

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“…The analysis of other markets (e.g., derivatives, foreign exchange, or energy markets), and their comparison with stock markets is an important avenue of research. Evans and Lyons (2002) and Lyons (1995) analyze the foreign exchange market, Biais and Hillion (1994) study options markets, Green, Hollifield and Schu¨rhoff (2003) and Harris and Piwowar (2003) examine the municipal bond market and Hotchkiss and Ronen (2002) consider the corporate bond market. Harris, 1988;Hasbrouck, 1988).…”

Section: Article In Pressmentioning

confidence: 99%

Market microstructure: A survey of microfoundations, empirical results, and policy implications

Biais¹,

Glosten²,

Spatt³

2005

Journal of Financial Markets

394

193

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We survey the literature analyzing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We offer a synthesis of the theoretical microfoundations and empirical approaches. Within this framework, we confront adverse selection, inventory costs and market power theories to the evidence on transactions costs and price impact. Building on these results, we proceed to an equilibrium analysis of policy issues. We review the extent to which market frictions can be mitigated by such features of market design as the degree of transparency, the use of call auctions, the pricing grid, and the regulation of competition between liquidity suppliers or exchanges. r 2005 Published by Elsevier B.V. 0. Introduction Mark Garman (1976) quite aptly coined the phrase ''market microstructure'' as the title of an article about market making and inventory costs. The phrase became a descriptive title for the investigation of the economic forces affecting trades, ARTICLE IN PRESS www.elsevier.com/locate/econbase 1386-4181/$ -see front matter r 2005 Published by Elsevier B.V.

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“…The MSRB database has been used to study trading costs in the municipal market by Green, Hollifield and Schürhoff (2005), Harris and Piwowar (2005), and Hong and Warga (2004 In a negotiated offering, the senior manager in the underwriting syndicate purchases the bonds from the issuer two to three weeks prior to the settlement date, when the bonds are actually delivered to the underwriter. In the intervening period, the underwriter bears price risk, and the senior manager and the comanagers can sell the bonds to customers or to other dealers on a "when issued" basis.…”

Section: Municipal Bond Issuance and The Samplementioning

confidence: 99%

“…Harris and Piwowar (2005) use time-series methods to estimate trading costs for municipal bonds, and show the costs are decreasing in trade size. Green, Hollifield and Schürhoff (2005) match buys and sales in seasoned bonds to estimate the profits to dealers from liquidity provision.…”

Section: Introductionmentioning

confidence: 99%

Dealer intermediation and price behavior in the aftermarket for new bond issues

Green

Hollifield

Schürhoff

2007

Journal of Financial Economics

193

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Roll for educating us about the structure of the muni market, and PriMuni LLC for providing the dataset. We also thank Shane Corwin, Espen Eckbo, Ron Goettler, Jean Helwege, Roni Michaely, Michael Piwowar, Enrique Schroth, and audiences at a number of seminars and conferences for helpful comments. We especially appreciate the efforts of an anonymous referee, whose comments improved the paper on several dimensions. We study trading and prices in newly issued municipal bonds. Municipals, which trade in decentralized, broker-dealer markets, are underpriced when issued, but unlike equities the average price rises slowly over a period of several days. We document high levels of price dispersion in newly issued bonds, and show that the average drift upward in price is because of changes in the mix of trades over time. While large trades occur close to the reoffering price, and close to each other, small trades occur at a wide range of prices almost simultaneously. Some small investors appear to be informed about the status of the issue, and trade on attractive terms. Others appear uninformed, and often buy at prices as much as five percent above the reoffering price, at which informed traders buy. We estimate a mixed-distribution model that highlights ex-ante characteristics that discriminate between these types of investors, and quantifies the losses uninformed traders or issuers give up to broker-dealers.

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Municipal Bond Liquidity

Cited by 32 publications

References 17 publications

Over-the-Counter Markets

Over-the-Counter Markets

Market microstructure: A survey of microfoundations, empirical results, and policy implications

Dealer intermediation and price behavior in the aftermarket for new bond issues

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