TEL AVIV, Israel, August 4, 2015 /PRNewswire/ --
Prof. Avi Wohl of the
Tel Aviv University and Dr.
Meni Abudy of the Bar Ilan University have examined corporate bond
trading at the Tel Aviv Stock Exchange (TASE) and found that the
participation rate of private traders is much higher relative to
the American market, where trading costs are much higher than in
Israel
Israel's corporate bond market
offers high liquidity to small and institutional investors relative
to its American counterpart, says a new study by Prof. Avi Wohl of the Recanati Business School at the
Tel Aviv University and Dr.
Meni Abudy of the Business
Administration School at the Bar Ilan
University. This assertion is also supported by data from
the World Federation of Exchanges, with the Israeli Stock Exchange
ranking third in the world in corporate bond trade volume as of
2015.
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The study, which examined trade on the corporate bond market in
2012, was conducted with the aim of comparing bond trading by the
open limit order book system, as is the case in Israel, with over-the-counter (OTC) markets,
the common mechanism for corporate bond trading in most markets
worldwide.
Wohl and Abudy have found that the Israeli corporate bond market
features a broad range of investors, small and institutional, who
benefit from an efficient market with low trading costs
(bid-ask-spreads excluding bank or TASE members' fees), relative to
the stock market in Israel and to
corporate bond markets around the world, in which the activity of
institutional investors is mostly predominant due to high trading
costs for small investors.
Large Number of Transactions
According to the study, at the Israeli Stock Exchange, corporate
bond turnover is higher than that of stocks, and the number of
transactions per day (approx. 70 per bond, on average) is much
higher than the one in the United
States (one to two transactions per day per bond, on
average).
During the sample period, the daily average trading volumes in
the corporate bond market were NIS 781
million (compared with NIS 958
million in stocks), with only 9.5% off-exchange transactions
(comparable to stocks -10%). The turnover of corporate bonds was
55.5%, which is significantly higher than that of stocks
(30.4%).
The bid-ask-spreads in the corporate bond market are low
compared with the United States,
but also compared with the Israeli stock market. In the small
traders' transactions examined by the researchers, it was found
that the average quoted half bid-ask spread for the relevant bond
was 0.11% (in practice, execution costs were 0.067%, because some
of the investors did not execute transactions against the spread,
but rather placed orders at better prices). The two researchers
have also found that the quoted bid-ask-spreads of corporate bonds
were much lower than those of the corresponding stocks.
For comparison purposes, various studies published with respect
to corporate bond trading in the United
States showed that, in transactions of up to $5,000, the investors' trading costs were 0.75%,
whereas the costs for investors of roughly $1 million was 0.09% - which is still higher than
the trading costs of small investors in Israel.
The findings arising from the corporate bond market in
Israel are, as aforesaid,
materially different than its American counterpart, where the
participation rate of private investors is extremely low and costs
are tenfold higher than the costs in Israel.
Significant Activity by Small Investors
In the study, the researchers checked approx. 468.5 thousand
accounts with an annual trading volume of less than NIS 1 million in all TASE securities (excluding
options). They referred to these investors as Small Retail
Investors (SRI). The SRIs examined were active on average in 5.1
securities and approx. 5.5 trading days. Their trading volume in
corporate bonds was 12.2% of the total volume, compared with 8.7%
in stocks.
For traders with an overall volume of up to NIS 2 million, trading volume in corporate bonds
was 17.6% of the total volume, compared with 13.1% in stocks. For
comparison purposes, studies conducted in the United States have found that 1.2% of the
trading volume was generated by transactions of up to $100 thousand each. Most of these transactions
were executed by institutional investors, apparently indicating
that the participation of private investors is negligible.
These figures underscore that in Israel the participation rate of private
investors in the corporate bond market is higher than their
participation rate in the stock market, and much higher than the
participation rate of private traders in the American corporate
bond market.
Link to the full paper: "Corporate Bond Trading by Retail
Investors in a Limit Order Book Exchange"
For more information please contact: Idit Yaaron or Orna
Goren, TASE, +972(076)8160405/6
Visit the Tel Aviv Stock Exchange's
Website: http://www.tase.co.il
SOURCE Tel Aviv Stock Exchange (TASE)