Stefan Huber, Edward Watts, Christina Zhu (Working), Information Flows in Trading Networks.
Abstract: We study the informational value of trading networks in over-the-counter (OTC) markets. Using detailed transaction-level data from the corporate bond market, we show that investors with larger dealer networks make superior trading decisions before changes in credit fundamentals and yield better risk-adjusted performance. We trace these investors' superior trading decisions to trading connections where dealers are most likely to have access to novel credit-relevant information, supporting the interpretation that these investors obtain private information through their larger trading networks. Collectively, our evidence highlights the importance of trading relationships for investors' private information acquisition.
