Are Liquidity and Information Risks Priced in the Treasury Bond Market?

Haitao Li, Junbo Wang, Chunchi Wu and Yan He
Authors registered in the RePEc Author Service: Junbo Wang and Junbo Wang

Journal of Finance, 2009, vol. 64, issue 1, 467-503

Abstract: We provide a comprehensive empirical analysis of the effects of liquidity and information risks on expected returns of Treasury bonds. We focus on the systematic liquidity risk of Pastor and Stambaugh as opposed to the traditional microstructure‐based measures of liquidity. Information risk is measured by the probability of information‐based trading (PIN). We document a strong positive relation between expected Treasury returns and liquidity and information risks, controlling for the effects of other systematic risk factors and bond characteristics. This relation is robust to many empirical specifications and a wide variety of traditional liquidity and informed trading proxies.

Date: 2009
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https://doi.org/10.1111/j.1540-6261.2008.01439.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:64:y:2009:i:1:p:467-503

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