Information and Liquidity of Over-the-Counter Securities: Evidence from Public Registration of Rule 144A Bonds

This paper examines the market liquidity effects of enhanced information induced by the public registration of 144A bonds, a significant and growing segment of the U.S. bond market. Using the regulatory version of TRACE data for the period 2002-2013, we find that following public registration of 144A bonds, dealer-specific effective bid-ask spreads narrow, especially for issues with higher ex-ante information asymmetry. Our results are consistent with existing theories that disclosure reduces information risk and thus improves market liquidity.