Corporate bond trading on a limit order book exchange

Menachem Abudy, Avi Wohl

Research output: Contribution to journalArticlepeer-review

23 Scopus citations


We investigate the trading of corporate bonds (c-bonds) by an open limit order book (LOB) mechanism. To do so, we use the case of the Tel Aviv Stock Exchange (TASE) as a laboratory, in which both stocks and c-bonds are traded by an LOB mechanism. Contrary to the OTC market in the USA, the TASE c-bond market is liquid with narrow spreads and low price dispersion. The short-term traders (STT), who are the analog of the market makers in the LOB, have small trading rents and unconcentrated activity (a low Herfindahl index). In the cross-section of bonds, the low concentration is related to low spreads, low price dispersion, and small STT rents. The non-STT [including retail investors (RIs), whose participation is significant] competes with the STT on quotation and tends to tighter quotes. RIs' activity contributes to narrower spreads.

Original languageEnglish
Pages (from-to)1413-1440
Number of pages28
JournalReview of Finance
Issue number4
StatePublished - 1 Jul 2018

Bibliographical note

Publisher Copyright:
© The Authors 2017.


* We thank an anonymous referee, Andrew Ellul (the Editor), Linda Allen, Yakov Amihud, Azi Ben-Rephael, Saul (Sam) Bronfeld, Joseph Fan, Peter Feldhutter, David Gilo, Robby Goldenberg, Bernt Arne Odegaard, Sraya Orgad, Marco Pagano, Richard Payne, Gideon Saar, Ashok Thomas, Dimitri Vayanos, Kumar Venkataraman, Shlomo Zilca, seminar participants at Bar-Ilan University, Ben-Gurion University, Hebrew University, IDC Herzliya, National Bank of Serbia and Tel Aviv University, participants in the Summer Finance Conference at IDC Herzliya 2014, the Erasmus Liquidity Conference 2015, the International Rome Conference on Money, Banking and Finance 2015, the Workshop on Corporate Bonds in Strasbourg 2016, European Finance Association (EFA) 2016, and the 12th Annual Central Bank Workshop on the Microstructure of Financial Markets in Paris 2016 for helpful comments and suggestions. We thank the Tel Aviv Stock Exchange for providing the trading data. We thank and Eran Ben-Horin for providing corporate bond data. We thank the Maurice Falk Institute for Economic Research in Israel for financial support. A.W. thanks the Jeremy Coller Foundation for its financial support.

FundersFunder number
Jeremy Coller Foundation
Maurice Falk Institute for Economic Research in Israel


    • Bid-ask spreads
    • Corporate bonds
    • Liquidity
    • Retail investors
    • Short-term investors
    • Trading costs


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