Notes on Bonds: Illiquidity Feedback During the Financial Crisis

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dc.contributor.authorMusto, David K
dc.contributor.authorNini, Greg
dc.contributor.authorSchwarz, Krista
dc.date2023-05-17T17:57:23.000
dc.date.accessioned2023-05-22T19:17:01Z
dc.date.available2023-05-22T19:17:01Z
dc.date.issued2016-09-28
dc.date.submitted2017-08-29T14:56:29-07:00
dc.description.abstractThis paper traces the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis; bonds fell more than six percent below more-liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flow to investors with longer horizons, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charged for access to their balance sheets in the crisis.
dc.identifier.urihttps://repository.upenn.edu/handle/20.500.14332/34510
dc.legacy.articleid1411
dc.legacy.fulltexturlhttps://repository.upenn.edu/cgi/viewcontent.cgi?article=1411&context=fnce_papers&unstamped=1
dc.source.issue40
dc.source.journalFinance Papers
dc.source.statuspublished
dc.subject.otherFinance and Financial Management
dc.titleNotes on Bonds: Illiquidity Feedback During the Financial Crisis
dc.typeOther
digcom.contributor.authorMusto, David K
digcom.contributor.authorNini, Greg
digcom.contributor.authorSchwarz, Krista
digcom.identifierfnce_papers/40
digcom.identifier.contextkey10678336
digcom.identifier.submissionpathfnce_papers/40
digcom.typeother
dspace.entity.typePublication
upenn.schoolDepartmentCenterFinance Papers
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