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Comparing possible proxies of corporate bond liquidity

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Author Info
Houweling, P.
Mentink, A.A.
Vorst, A.C.F. (Erasmus Econometric Institute)

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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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File URL: http://hdl.handle.net/1765/1081
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Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2003-49 Revision_Date: 2009-07-29.

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Date of creation: 07 Aug 2003
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Handle: RePEc:dgr:eureir:1765001081

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Related research
Keywords: liquidity; corporate bonds; Fama-French model; euro market;

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  1. Jens Christensen, 2008. "The corporate bond credit spread puzzle," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Mar 14. [Downloadable!]
  2. Castagnetti, Carolina & Rossi, Eduardo, 2008. "Euro corporate bonds risk factors," MPRA Paper 13440, University Library of Munich, Germany. [Downloadable!]
  3. Ericsson, Jan & Jacobs, Kris & Oviedo-Helfenberger, Rodolfo, 2004. "The Determinants of Credit Default Swap Premia," SIFR Research Report Series 32, Institute for Financial Research. [Downloadable!]
    Other versions:
  4. Song Han & Hao Zhou, 2008. "Effects of liquidity on the nondefault component of corporate yield spreads: evidence from intraday transactions data," Finance and Economics Discussion Series 2008-40, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. 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. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. Christopher F Baum & Chi Wan, 2009. "Macroeconomic Uncertainty and Credit Default Swap Spreads," Boston College Working Papers in Economics 724, Boston College Department of Economics. [Downloadable!]
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