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How to measure Corporate Bond Liquidity?

Author

Listed:
  • Patrick Houweling

    () (Faculty of Economics, Erasmus University Rotterdam)

  • Albert Mentink

    () (Faculty of Economics, Erasmus University Rotterdam)

  • Ton Vorst

    () (VU University Amsterdam)

Abstract

We consider eight different measures (issued amount, coupon, listed, age, missingprices, price volatility, number of contributors and yield dispersion) to approximate corporatebond liquidity and use a five-variable model to control for maturity, credit and currencydifferences between bonds. The null hypothesis that liquidity risk is not priced in our dataset of euro corporate bonds is rejected for seven out of eight liquidity measures. We findsignificant liquidity premia, ranging from 9 to 24 basis points. A comparison test betweenliquidity measures shows that some ways to measure liquidity are better than others.

Suggested Citation

  • Patrick Houweling & Albert Mentink & Ton Vorst, 2003. "How to measure Corporate Bond Liquidity?," Tinbergen Institute Discussion Papers 03-030/2, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20030030
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    Cited by:

    1. Coluzzi, Chiara & Ginebri, Sergio & Turco, Manuel, 2008. "Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08044, University of Molise, Dept. EGSeI.

    More about this item

    Keywords

    liquidity; corporate bonds; Fama-French model; euro market.;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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