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Nonlinear structural estimation of corporate bond liquidity

Author

Listed:
  • Diego Leal Gonzalez

    (University of Texas at El Paso)

  • Bryan Stanhouse

    (University of Oklahoma)

  • Duane Stock

    (University of Oklahoma)

  • Xin Yue Zhou

    (University of Oklahoma)

Abstract

We estimate the term structure of corporate bond liquidity premiums using a dual estimation technique. Our estimates reveal that the term structures of the liquidity premiums were positively sloped and concave for each category of creditworthiness and in three economic epochs. As the macroeconomy transitioned from a pre-crisis to a crisis period, liquidity premiums elevated across time to maturity for both investment grade and speculative grade bonds. With the migration of the financial system from stress to relative calm, the premiums on both grades of debt declined for all maturities.

Suggested Citation

  • Diego Leal Gonzalez & Bryan Stanhouse & Duane Stock & Xin Yue Zhou, 2025. "Nonlinear structural estimation of corporate bond liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 64(2), pages 799-827, February.
    • Handle: RePEc:kap:rqfnac:v:64:y:2025:i:2:d:10.1007_s11156-024-01323-y
    DOI: 10.1007/s11156-024-01323-y
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    More about this item

    Keywords

    Term structure; Liquidity premiums; Corporate bonds; Signal extraction; Unscented transformations;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G19 - Financial Economics - - General Financial Markets - - - Other

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