Estimating the term structure of corporate bond liquidity premiums: An analysis of default free bank bonds

Diego Leal, Bryan Stanhouse and Duane Stock

Journal of International Financial Markets, Institutions and Money, 2020, vol. 67, issue C

Abstract: Using proxies for conversion cost parameters in conjunction with a special set of default free corporate bonds, we empirically establish that the term structure of liquidity spreads was positively sloped in the financial crisis period of 2008 and negatively sloped in the subsequent post crisis period. Importantly, these results indicate the segment of the term structure that provides the largest liquidity premiums to lenders for alternative economic scenarios. At the same time, for different financial epochs, the liquidity spreads associated with different times to maturity are clear to those who issue debt.

Keywords: Term structure; Liquidity premium; Corporate bonds; Search models (search for similar items in EconPapers)
JEL-codes: G00 G12 G19 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:67:y:2020:i:c:s1042443120301013

DOI: 10.1016/j.intfin.2020.101217

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