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The liquidity of the Secondary Market for Debt Securities in Norway

Author

Listed:
  • Rakkestad, Ketil

    (Norges Bank)

  • Skjeltorp, Johannes

    (Norges Bank)

  • Ødegaard, Bernt Arne

    () (University of Stavanger)

Abstract

The main purpose of this project is to examine the liquidity and activity in the secondary market for Norwegian debt securities. The second objective is to determine whether the activity and data availability is sufficient to construct indicators that can be used to monitor the state of Norwegian bond market on a regular basis. To this end we examine a detailed data set provided to us by Oslo B{\o}rs Informasjon (OBI) containing the complete record of daily trading activity in all exchange listed fixed income securities in Norway over the period 1999-2011. Due to the low trading activity in corporate securities and the fact that a large part of trading in corporate debt is conducted off market (OTC), makes it challenging to produce reliable liquidity indicators. In particular, order based liquidity measures (such as the bid ask spread), that typically are superior measures of liquidity supply, are in most cases not possible to construct due to the lack of two sided quote observation. On the other hand, due to the reporting rules of all OTC trades to the Oslo Stock Exchange, trade based measures of liquidity (such as the Amihud ILR) are more informative.

Suggested Citation

  • Rakkestad, Ketil & Skjeltorp, Johannes & Ødegaard, Bernt Arne, 2012. "The liquidity of the Secondary Market for Debt Securities in Norway," UiS Working Papers in Economics and Finance 2012/12, University of Stavanger.
  • Handle: RePEc:hhs:stavef:2012_012
    as

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    File URL: http://dl.dropbox.com/u/8078351/uis_wps_econ_fin/uis_wps_2012_12_rakkestad_skjeltorp_odegaard.pdf
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    References listed on IDEAS

    as
    1. Aitken, Michael & Comerton-Forde, Carole, 2003. "How should liquidity be measured?," Pacific-Basin Finance Journal, Elsevier, vol. 11(1), pages 45-59, January.
    2. Naes, Randi & Skjeltorp, Johannes & Odegaard, Bernt Arne, 2008. "Liquidity and the Business Cycle," UiS Working Papers in Economics and Finance 2009/1, University of Stavanger.
    3. Thierry Foucault & Ohad Kadan & Eugene Kandel, 2013. "Liquidity Cycles and Make/Take Fees in Electronic Markets," Journal of Finance, American Finance Association, vol. 68(1), pages 299-341, February.
    4. Chollete, Lorán & Næs, Randi & Skjeltorp, Johannes A., 2008. "The Risk Components of Liquidity," Discussion Papers 2008/7, Norwegian School of Economics, Department of Business and Management Science.
    5. Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009. "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 925-957, March.
    6. Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, February.
    7. Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2010. "Why do firms pay for liquidity provision in limit order markets?," Working Paper 2010/12, Norges Bank.
    8. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2008. "Liquidity at the Oslo Stock Exchange," Working Paper 2008/09, Norges Bank.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Liquidity; Norwegian Bond Market;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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