Market dynamics study reveals potential for extreme price movements in corporate bonds
The article presents a model of corporate bond trading that looks at how different players in the market interact. By using real market data, the model shows that market makers and momentum traders can cause big swings in bond prices after a shock. Investors' past experiences can also make these swings worse. Limiting how quickly investors can pull out money can help stabilize prices. The rise of passive investing can make big price swings more likely, even though overall volatility may go down.