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Journal of Finance Vol. 59 No. 2 2004

Trading Activity and Price Volatility in the Municipal Bond Market

Chris Downing; Frank Zhang1,2,3,4

1 Federal Reserve · 2 New York Times · 3 Federal Reserve Board of Governors · 4 Precision for Medicine (United States)

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Abstract

Utilizing a comprehensive database of transactions in municipal bonds, we investigate the volume–volatility relation in the municipal bond market. We find a positive relation between the number of transactions and a bond's price volatility. In contrast to previous studies, we find a negative relation between average deal size and price volatility. These results are found to be robust throughout the sample. Our results are inconsistent with current theoretical models of the volume–volatility relation. These inconsistencies may arise because current models fail to account for the effects of overall market liquidity on the costs of large transactions.

DOI
10.1111/j.1540-6261.2004.00652.x
Volume
59
Issue
2
Pages
899-931
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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