Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243278 
Year of Publication: 
2021
Series/Report no.: 
SAFE Working Paper No. 298
Version Description: 
September 9, 2021
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
We document a sizable OTC discount in the interdealer market for German sovereign bonds where exchange and over-the-counter trading coexist: the vast majority of OTC prices are favorable compared to exchange quotes. This is a challenge for theories of OTC markets centered around search-and-bargaining frictions but consistent with models of hybrid markets based on information frictions. We find support for this explanation. Distinguishing between bilateral and broker-intermediated OTC trades, differences in OTC discount across protocols are consistent with their relative informedness. Within each protocol, the difference in OTC discount is explained not only by information but also by search-and-bargaining frictions.
Subjects: 
Market Microstructure
Hybrid Markets
Venue Choice
Interdealer Brokerage
Fixed-Income
OTC Markets
Search Frictions
Information Frictions
JEL: 
D4
D47
G1
G14
G24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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