Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Over-the-Counter Market Liquidity and Securities Lending
This paper studies how over-the-counter market liquidity is affected by securities lending. We combine micro-data on corporate bond market trades with securities lending transactions and individual corporate bond holdings by U.S. insurance companies. Applying a difference-in-differences empirical strategy, we show that the shutdown of AIG's securities lending program in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds predominantly held by AIG. We also show that an important mechanism behind the decrease in corporate bond liquidity was a shift towards relatively small trades among a greater number of dealers in the interdealer market.
Cite this item
Nathan Foley-Fisher & Stefan Gissler & Stephane Verani, Over-the-Counter Market Liquidity and Securities Lending, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2019-011, 19 Feb 2019.
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
Keywords: Broker-dealers ; Corporate bonds ; Insurance companies ; Market liquidity ; Over-the-counter markets ; Securities lending
This item with handle RePEc:fip:fedgfe:2019-11
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