Predicting the behavior of dealers in over-the-counter corporate bond markets

Yusen Lin, Jinming Xue, Louiqa Raschid

Abstract: Over-the-counter (OTC) refers to the process of trading (buying and selling) securities that are not listed on a public exchange such as the New York Stock Exchange. Understanding the trading activities of OTC dealers is crucial for market participants, and for regulators, to better understand and monitor this largely opaque and complex market. Our dataset is the OTC market in US corporate bonds. The large number of bonds, low volume, and the lack of transparency and information exchange in OTC markets increase the role and importance of the dealers.