Abstract Book of the 9th International Conference on Business, Management and Finance
Year: 2025
[PDF]
OTC Frictions In Stressed Markets: Evidence From The UK Sovereign Bond Market
Andrew Lepone, Jef Van Cappellen, Fabian Garavito, Yordan Georgiev
ABSTRACT:
We examine the impact of over-the-counter (OTC) market frictions on liquidity within the UK gilt market, utilising a comprehensive MiFID II dataset spanning from September 2019 to November 2020. This period encompasses the critical phase of the COVID-19 pandemic, offering a unique context to analyse the dynamics of inventory, search, and bargaining frictions that are characteristic of OTC markets. The findings reveal a substantial relationship between the exacerbation of these prevalent OTC frictions and the observable decrease in market liquidity during the heightened stress of the COVID-19 crisis. The study provides a deeper understanding of the resilience of financial markets under stress and offers insights for both policymakers and market participants on market functioning and stability.
Keywords: Government bonds; OTC markets; Liquidity; Transparency.