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Illiquidity or credit deterioration: A study of liquidity in the US corporate bond market during

Authors: Subrahmanyam, Marti G.
Jankowitsch, Rainer
Friewald, Nils
Issue Date: 9-Jan-2012
Series/Report no.: FIN-11-043
Abstract: We investigate whether liquidity is an important price factor in the US corporate bond market. In particular, we focus on whether liquidity eects are more pronounced in periods of nancial crises, especially for bonds with high credit risk, using a unique data set covering more than 20,000 bonds, between October 2004 and December 2008. We employ a wide range of liquidity measures and nd that liquidity eects account for approximately 14% of the explained market-wide corporate yield spread changes. We conclude that the economic impact of the liquidity measures is signicantly larger in periods of crisis, and for speculative grade bonds.
Appears in Collections:Finance Working Papers

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