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The Journal of Fixed Income

The Journal of Fixed Income

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Primary Article

Municipal Marketability

Gwangheon Hong and Arthur D Warga
The Journal of Fixed Income Fall 2004, 14 (2) 86-95; DOI: https://doi.org/10.3905/jfi.2004.439839
Gwangheon Hong
An assistant professor of finance at Sogang University in Seoul, Korea and the College of Business of Saginaw Valley State University in University Center, MI. ghong@sogang.ac.kr
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Arthur D Warga
The dean of the C.T. Bauer College of Business, and Judge James A. Elkins professor of banking and finance at the University of Houston in Houston, TX. warga@uh.edu
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Abstract

A study of institutional- and retail-sized municipal bond transactions finds bid-ask spreads for retail-sized trades average well over 2% of price for both rated and non-rated issues, much higher than spreads for the institutional trades. Retail trade marketability measures suggest that municipal bonds have an implicit constraint of more than one month of non-marketability (time to transact at a given price), compared to under ten days for institutional-sized trades. The market is fairly well structured in terms of trading costs by bond rating. Lower-grade issues are costlier to transact in, with non-rated issues falling somewhere between Baa and high-yield. The major structural determinants of the bid-ask spread are volatility (time to maturity), trade volume, coupon, callability, and pre-refunded status.

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The Journal of Fixed Income
Vol. 14, Issue 2
Fall 2004
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Municipal Marketability
Gwangheon Hong, Arthur D Warga
The Journal of Fixed Income Sep 2004, 14 (2) 86-95; DOI: 10.3905/jfi.2004.439839

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Municipal Marketability
Gwangheon Hong, Arthur D Warga
The Journal of Fixed Income Sep 2004, 14 (2) 86-95; DOI: 10.3905/jfi.2004.439839
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