Before revision: The goal of this paper is to establish a benchmark for transaction cost analysis in bond trading for retail investors.
After revision: With the rise of the electronic trading, corporate bond traders have access to data information of past trades. As a first step to automation, they have to start monitoring their own trades, and using past data to build a benchmark for the expected transaction costs with given bond characteristics and market conditions. Given the limited liquidity of corporate bonds which are traded few times daily, a statistical model is the only way to benchmark effective costs. It brings focused attention of the dealing desk of an institutional investor on the most costly trades, and enables identifying and improving business practices such as the market timing for selection counterparties. Unlike existing literature which focuses on general measurements using OLS, this paper takes the viewpoint of a given investor, and provides an analytical approach to establish a benchmark for transaction cost analysis in bond trading for retail investors.