The Real-Time Transaction Reporting System (RTRS) reduced the delay in reporting municipal bond trades from one-day to 15 min. We find a significant reduction in secondary market trading costs after the introduction of the RTRS. Our estimates imply that retail investors benefited primarily from reduced dealer intermediation costs, while large trades benefited from reductions in bargaining costs. Bonds experienced increases in trading volume across the liquidity spectrum. We find higher dealer capital commitment, longer intermediation chains, and fewer pre-arranged trades, all suggesting increased market-making incentives for dealers. These results are largely consistent with predictions from search-based models.

Abstract In contrast to the “lazy prices” phenomenon in the stock market, more 10-K textual changes lead to larger increases in volatility smirks—consistent with options traders buying more out-of-the-money put options based on negative information disclosed in textual changes. Moreover, the lazy-prices effect is mainly driven by stocks with tradable options, suggesting that limits to arbitrage lead to a delayed response of stock prices. Finally, the return predictability of textual changes is stronger for stocks with larger option volatility smirk changes. Sophisticated options traders, therefore, demonstrate superior skills at extracting relevant information from public filings.