IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v68y2024ics1386418124000132.html
   My bibliography  Save this article

Extreme illiquidity and cross-sectional corporate bond returns

Author

Listed:
  • Chen, Xi
  • Wang, Junbo
  • Wu, Chunchi
  • Wu, Di

Abstract

Corporate bonds carry an extreme illiquidity (EIL) premium. This premium permeates all rating categories and heightens during financial crises and periods of high uncertainty. EIL has predictive power in the cross-section for future returns up to at least one year. Active investors like mutual funds prefer low EIL bonds that can be easily liquidated during times of stress, whereas passive institutional investors overweight high EIL bonds to receive the EIL premium. While adding an EIL factor constructed from portfolios to the factor model increases the explanatory power, its effect is largely subsumed by bond-level EIL in a horse race.

Suggested Citation

  • Chen, Xi & Wang, Junbo & Wu, Chunchi & Wu, Di, 2024. "Extreme illiquidity and cross-sectional corporate bond returns," Journal of Financial Markets, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finmar:v:68:y:2024:i:c:s1386418124000132
    DOI: 10.1016/j.finmar.2024.100895
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386418124000132
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.finmar.2024.100895?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Extreme illiquidity; Corporate bond pricing; Ratings; Financial crisis; Tail risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:68:y:2024:i:c:s1386418124000132. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.