Keywords: Municipal bond, price, volatility, volume
Abstract: Utilizing a comprehensive database of transactions in municipal bonds,
we investigate the volume-volatility relationship in the muni market.
We find a positive relationship between the number of transactions and
a bond's price volatility. In contrast to previous studies, we find a
negative relationship 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 relationship. These inconsistencies may arise
because current models fail to account for the effects of overall
market liquidity on the costs of large transactions.
Full paper (358 KB PDF)
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Last update: September 4, 2002