Does trading frequency affect subordinated debt spreads?
AbstractBecause illiquid bonds may be relatively poorly priced, the ability to infer investor perceptions of changes in a banking organization's financial health from such bonds may be obscured. To examine the time-series effect of trading frequency on subordinated debt spreads, we consider the liquidity of subordinated debt for large, complex U.S. banking organizations over the 1987:Q2 - 2002:Q4 period. Since trade volumes are unobservable, we construct various measures of weekly trading frequency from observed bond prices. Using these indirect liquidity measures, we find evidence that trading frequency does significantly affect observed subordinated debt spreads. We also provide estimates for the premium of illiquidity.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2005-08.
Date of creation: 2004
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-23 (All new papers)
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- Imai, Masami, 2007. "The emergence of market monitoring in Japanese banks: Evidence from the subordinated debt market," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1441-1460, May.
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Journal of Economics and Business,
Elsevier, vol. 63(1), pages 1-22.
- Evanoff, Douglas D. & Jagtiani, Julapa A. & Nakata, Taisuke, 2011. "Enhancing market discipline in banking: The role of subordinated debt in financial regulatory reform," Journal of Economics and Business, Elsevier, vol. 63(1), pages 1-22, January.
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