Trading in Corporate Bond Markets
In corporate bond markets, in contrast to most equity markets, daily liquidity may not be present, posing challenges for investors. Due to this illiquidity, trading can be difficult, resulting in high transaction costs and slow execution of trades. Academic research on liquidity has focused mainly on equities due to better data availability, but there are also papers on corporate bonds, such as Edwards, Harris and Piwowar (2004) and Chen, Lesmond and Wei (2007). With the advent of the TRACE database in the mid 2000’s, detailed transaction data has become available to determine optimal trading strategies in corporate bond markets.
At Robeco we are managing about EUR 25bln, and growing, in corporate bond markets. This means trading excellence is very important. Therefore we want to broaden our knowledge on this topic. We have collected detailed transaction data on thousands of transactions. In combination with the TRACE database, there is plenty of data available to study. We are specifically interested in modeling bond-specific liquidity and transaction costs.
The project covers the entire quant model development cycle: analyzing the data, building the model, analyzing the results, discussing results with researchers and portfolio managers, writing a research report and giving a presentation. As with all Super Quant internships, the assignment will be supervised by an experienced empirical researcher of Robeco’s Quantitative Strategies department. Practical feedback will be provided by several credit portfolio managers and traders. Creative, analytic and programming skills are essential in order to successfully complete the project.
Chen, Lesmond, Wei, 2007, “Corporate Yield Spreads and Bond Liquidity”, Journal of Finance, 2007, 62 (1), pp. 119-149.
Edwards, Harris, Piwowar, “Corporate Bond Market Transparency and Transaction Costs”, Journal of Finance, 2007