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J-liquidity measure: The term structure of the liquidity premium in Japan

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  • Hattori, Takahiro

Abstract

We interpret the yield spread between Japanese government-guaranteed bonds and government bonds as market liquidity, which we refer to as the J-liquidity measure. Our model-free approach not only provides the term structure of the liquidity premium, but also captures the impact of illiquidity events and the illiquidity condition of the Japanese fixed-income market. We empirically show that the long-term factor of the liquidity premium curve is driven by the volatility of the short-term rate. The liquidity measure is provided publicly for future applications.

Suggested Citation

  • Hattori, Takahiro, 2019. "J-liquidity measure: The term structure of the liquidity premium in Japan," Japan and the World Economy, Elsevier, vol. 49(C), pages 61-72.
  • Handle: RePEc:eee:japwor:v:49:y:2019:i:c:p:61-72
    DOI: 10.1016/j.japwor.2018.08.005
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    1. Hattori, Takahiro, 2021. "Noise as a liquidity measure: Evidence from the JGB market," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Bond liquidity; Liquidity risk; Term structure of the liquidity premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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