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Comparing possible proxies of corporate bond liquidity

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  • Houweling, Patrick
  • Mentink, Albert
  • Vorst, Ton

Abstract

We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 29 (2005)
Issue (Month): 6 (June)
Pages: 1331-1358
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eee:jbfina:v:29:y:2005:i:6:p:1331-1358

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For corrections or technical questions regarding this item, or to correct its listing, contact: (Jeroen Loos).

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Cited by:
  1. Bada, Oualid & Kneip, Alois, 2010. "Panel Data Models with Unobserved Multiple Time- Varying Effects to Estimate Risk Premium of Corporate Bonds," MPRA Paper 26006, University Library of Munich, Germany.
  2. Jens Christensen, 2008. "The corporate bond credit spread puzzle," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Mar 14.
  3. Castagnetti, Carolina & Rossi, Eduardo, 2008. "Euro corporate bonds risk factors," MPRA Paper 13440, University Library of Munich, Germany.
  4. Ericsson, Jan & Jacobs, Kris & Oviedo, Rodolfo, 2009. "The Determinants of Credit Default Swap Premia," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(01), pages 109-132, February.
  5. Song Han & Hao Zhou, 2011. "Effects of Liquidity on the Nondefault Component of Corporate Yield Spreads: Evidence from Intraday Transactions Data," Working Papers 022011, Hong Kong Institute for Monetary Research.
  6. Eric Girardin & Dijun Tan & Woon K. Wong, 2010. "Information Content of Order Flow and Cross-market Portfolio Rebalancing: Evidence for the Chinese Stock, Treasury and Corporate Bond Markets," Working Papers 022010, Hong Kong Institute for Monetary Research.
  7. Lando, David & Mortensen, Allan, 2004. "On the Pricing of Step-Up Bonds in the European Telecom Sector," Working Papers 2004-9, Copenhagen Business School, Department of Finance.
  8. Yalin Gündüz & Torsten Lüdecke & Marliese Uhrig-Homburg, 2007. "Trading Credit Default Swaps via Interdealer Brokers," Journal of Financial Services Research, Springer, vol. 32(3), pages 141-159, December.
  9. Kucuk, Ugur N., 2010. "Non-default Component of Sovereign Emerging Market Yield Spreads and its Determinants: Evidence from Credit Default Swap Market," MPRA Paper 27428, University Library of Munich, Germany.
  10. Christopher Baum & Chi Wan, 2010. "Macroeconomic uncertainty and credit default swap spreads," Applied Financial Economics, Taylor and Francis Journals, vol. 20(15), pages 1163-1171.

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