NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Zhaogang Song

The Johns Hopkins Carey
Business School
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Baltimore, MD 21202

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Institutional Affiliation: Johns Hopkins University

NBER Working Papers and Publications

June 2016The Value of Trading Relationships in Turbulent Times
with Marco Di Maggio, Amir Kermani: w22332
This paper investigates the ways in which the network of relationships between dealers shapes their trading behavior in the corporate bond market. They charge lower spreads to dealers with whom they have the strongest ties, and this effect is all the more pronounced at times of market turmoil. Moreover, highly connected and systemically important dealers exploit their connections at the expense of peripheral dealers as well as clients, charging higher markups than to other core dealers, especially during periods of uncertainty. We show that following the collapse of a flagship dealer in 2008, trading chains lengthened by almost 20 percent and that the increase was even greater for the institutions that had the closest ties with the defaulted dealer. Finally, we find evidence that dealers d...
 
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