Liquidity Risk and Corporate Bond Yield Spread: Evidence from China

Yinghui Chen and Lunan Jiang
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Yinghui Chen: School of Accounting, Zhongnan University of Economics and Law

No 2019/9, CFDS Discussion Paper Series from Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China

Abstract: This paper investigates the contribution of liquidity risk to Chinese corporate bond spreads. We calculate corporate bond spreads based on the full treasury yield curve and establish a set of liquidity measures of the Chinese corporate bonds. Our empirical study shows that liquidity premium accounts for a relatively smaller portion of corporate bond spread in China, although the market liquidity is low and corporate bond issuers are strictly pre-screened. These findings are interesting, as the developed markets have better liquidity and less pre-issuance restriction, and liquidity premium still explains a relatively larger portion of corporate bond spread. Besides, we also explore the determinants of Chinese corporate bond liquidity and default premiums.

Keywords: Yield spread; Liquidity risk; Default risk (search for similar items in EconPapers)
JEL-codes: C23 G12 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2019-11
New Economics Papers: this item is included in nep-ore, nep-rmg and nep-tra
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http://cfds.henuecon.education/images/dpaper/WP_9_ ... _Bond_Liquidity1.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fds:dpaper:201909

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