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Measuring Liquidity in Bond Markets

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  • Raphael Schestag
  • Philipp Schuster
  • Marliese Uhrig-Homburg

Abstract

In the literature, there is no consensus on a common approach to measure bond liquidity. This paper is the first to comprehensively compare all commonly employed liquidity measures based on intraday and daily data for the U.S. corporate bond market. We find that high-frequency measures based on intraday data are very strongly correlated, implying that previous results should be robust regarding the chosen measure. Most low-frequency proxies based on daily data generally also measure transaction costs well. However, three proxies clearly take the lead: Corwin and Schultz's (2012) high-low spread estimator, Roll's (1984) measure, and Hasbrouck's (2009) Gibbs measure. Received August 13, 2015; accepted December 5, 2015 by Editor Stefan Nagel.

Suggested Citation

  • Raphael Schestag & Philipp Schuster & Marliese Uhrig-Homburg, 2016. "Measuring Liquidity in Bond Markets," The Review of Financial Studies, Society for Financial Studies, vol. 29(5), pages 1170-1219.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:5:p:1170-1219.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv132
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