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Does the Liquidity of a Debt Issue Increase with Its Size? Evidence from the Corporate Bond and Medium-Term Note Markets

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  • Crabbe, Leland E
  • Turner, Christopher M
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    Abstract

    To investigate the liquidity of large issues, this study tests for yield differences between corporate bonds and medium-term notes. In the sample, medium-term notes have an average issue size of $4 million, compared with $265 million for bonds. Among medium-term notes that have the same issuance date, the same maturity date, and the same corporate issuer, the authors find no relation between size and yields. Moreover, bonds and medium-term notes have statistically equivalent yields. Thus, rather than suggesting that large issues have greater liquidity, these findings indicate that large and small securities issued by the same borrower are close substitutes. Copyright 1995 by American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 50 (1995)
    Issue (Month): 5 (December)
    Pages: 1719-34

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    Handle: RePEc:bla:jfinan:v:50:y:1995:i:5:p:1719-34

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    Cited by:
    1. Petrasek, Lubomir, 2012. "Multimarket trading and corporate bond liquidity," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2110-2121.
    2. Houweling, Patrick & Mentink, Albert & Vorst, Ton, 2005. "Comparing possible proxies of corporate bond liquidity," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1331-1358, June.
    3. Ronen, Tavy & Zhou, Xing, 2013. "Trade and information in the corporate bond market," Journal of Financial Markets, Elsevier, vol. 16(1), pages 61-103.
    4. Michael J. Fleming, 2002. "Are larger Treasury issues more liquid? Evidence from bill reopenings," Proceedings, Federal Reserve Bank of Cleveland, pages 707-739.
    5. Georges Hübner & Robert Joliet, 2013. "Government Debt Denomination Policies Before and After the EMU Advent," Open Economies Review, Springer, vol. 24(2), pages 283-309, April.
    6. Arena, Matteo P. & Dewally, Michaël, 2012. "Firm location and corporate debt," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1079-1092.
    7. Robert R. Bliss, 2001. "Market discipline and subordinated debt: a review of some salient issues," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 24-45.
    8. Resnick, Bruce G., 2012. "Investor yield and gross underwriting spread comparisons among U.S. dollar domestic, Yankee, Eurodollar, and global bonds," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 445-463.

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