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Liquidity dimensions in the U.S. corporate bond market

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  • Díaz, Antonio
  • Escribano, Ana

Abstract

We examine the role of five liquidity dimensions in the U.S. corporate bond market from a broad set of liquidity proxies. Based on the observed different level of liquidity shown by investment-grade and high-yield bonds, we analyze the ability of several liquidity proxies and dimensions to classify bonds within these two main credit rating classes. Our findings show that, at the individual level, all tightness-based liquidity metrics outperform the other measures. In this way, a few proxies measuring transaction costs can help detect high-yield bonds whose liquidity behaves similarly to that of investment-grade bonds. At the dimension level, we find that the theoretical separation into liquidity dimensions is empirically corroborated, but the joint consideration of all of them only brings a slight improvement in results.

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  • Díaz, Antonio & Escribano, Ana, 2022. "Liquidity dimensions in the U.S. corporate bond market," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1163-1179.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:1163-1179
    DOI: 10.1016/j.iref.2022.04.008
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    More about this item

    Keywords

    Liquidity; Corporate bonds; Liquidity proxies; Liquidity dimensions; High-yield bonds;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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