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Price dynamics in OTC Bond Market: the role of market microstructure
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Resumo(s)
This thesis investigates the drivers of daily price returns in over-the-counter corporate bond
markets by comparing market microstructure elements with factors like liquidity, market
conditions, and bond-specific characteristics. Using a dynamic Instrumental Variable Two Stage Least Squares (IV-2SLS) model, the study identifies changes in the 10-year Treasury
yield and yield spreads as primary determinants of bond returns. Additionally, market
microstructure factors significantly influence returns as secondary mechanisms refining pricing
based on market conditions, liquidity, and bond characteristics. These findings underscore the
dominant role of macroeconomic indicators and the context-dependent role of microstructure
factors, providing insights to enhance market efficiency and stability.
Descrição
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Corporate bonds Market microstructure OTC markets Financial markets Price dynamics