IDEAS home Printed from https://ideas.repec.org/p/pur/prukra/1130.html
   My bibliography  Save this paper

The Determinants of Liquidity in U.S. Corporate, Municipal, and Treasury Bond Markets

Author

Listed:
  • Chakravarty, Sugato
  • Sarker, Asani

Abstract

We examine the determinants of the realized bid-ask spread in the U.S. corporate, municipal, and Treasury bond markets for the period 1995 to 1997, based on newly available transactions data. We find that the bid-ask spread is negatively related to a bond s trading activity and positively related to its risk. In the corporate and municipal markets, the bid-ask spread increases in the remaining time to maturity and the credit risk. For corporate bonds, the bid-ask spread is concave in the time to maturity and increases in the age of the bond. In addition, the bid-ask spread is negatively related to the buy volume and positively related to the sell volume for corporate and municipal bonds, suggesting that the bond market may view sales as signals of adverse information about the bond. Consistent with this interpretation, the bid-ask spread is negatively related to the sell volume in the Treasury bond market. Further, volume is partly predictable, since only surprises in volume affect the bid-ask spread in the corporate and Treasury markets. We find that the bid-ask spread is not significantly different between the three markets, between large or primary market dealers and smaller dealers, and between large and small institutions. Finally, we examine why institutions sometimes trade without dealers, and find that the relative volume of directly negotiated trades in a bond decreases in its bid-ask spread, interest rate risk and adverse selection risk and increases in its activity level.

Suggested Citation

  • Chakravarty, Sugato & Sarker, Asani, 2000. "The Determinants of Liquidity in U.S. Corporate, Municipal, and Treasury Bond Markets," Purdue University Economics Working Papers 1130, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1130
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pur:prukra:1130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Business PHD (email available below). General contact details of provider: https://edirc.repec.org/data/kspurus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.