Information flows in trading networks

Stefan J. Huber, Edward M. Watts, Christina Zhu

Journal of Accounting and Economics · 2026 · Volume 0 · Issue 0

DOI: 10.1016/j.jacceco.2026.101876

Abstract

We study the informational value of trading networks in over-the-counter (OTC) markets. Using detailed transaction-level data from the corporate bond market, we show that investors with larger dealer networks make superior trading decisions before changes in credit fundamentals, resulting in better risk-adjusted performance. We trace these investors’ superior trading decisions to trading connections where dealers are most likely to have access to novel credit-relevant information, supporting the interpretation that these investors obtain private information through their trading networks. Collectively, our evidence highlights the importance of trading relationships for investors’ private information acquisition.

Keywords

Corporate bonds, Credit ratings, Dealer networks, Informed trading, Insurance companies, M&A, Over-the-counter markets, Social finance

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