Cross Trading in the Corporate Bond Market
Publication Date
5-21-2025
Abstract
We examine cross-trading by mutual funds in corporate bonds. Because internally matched trades are not observable, we construct two measures that rely on reported trade volume and opposite-signed trades within a family. We find that cross-trading is common--more than 5% of bond-family-quarters have positive indicators. There is large variation across families and higher crossing activity for illiquid and hard-to-obtain bonds. Cross-trading is particularly elevated around demand shocks (e.g., maturity cutoffs and credit rating changes), indicating that cross-trading is beneficial in times of stress. We document large transaction cost savings, although these savings have diminished following a new regulation that significantly limits cross trading in corporate bonds.
Document Type
Article
Keywords
Mutual funds, Corporate bonds, Cross trading, Transaction Costs
Disciplines
Finance
DOI
10.2139/ssrn.5263491
Source
SMU Cox: Finance (Topic)
Language
English
