 Liquidity effects in corporate bond spreadsJean Helwege, Jingzhi Huang and Yuan Wang Journal of Banking & Finance, 2014, vol. 45, issue C, 105-116 Abstract: Corporate bond spreads are affected by both credit risk and liquidity and it is difficult to disentangle the two factors empirically. In this paper we separate out the credit risk component by examining bonds that are issued by the same firm and that trade on the same day, allowing us to examine the effects of liquidity in a sample of bond pairs. We examine standard liquidity measures to determine how well they explain the differences in the two bonds’ yield spreads and find that the proxies do a poor job of measuring liquidity effects. Incorporating liquidity proxies related to other bonds issued by the firm and those for bonds of other firms can significantly improve the explanatory power. Still, a significant portion of the spread is left unexplained and it is largely driven by a common unknown factor. We conclude that good proxies for the liquidity component of corporate bond spreads remain elusive. Keywords: Liquidity; Credit risk; Corporate bond spreads; Corporate bond liquidity; Credit spread puzzle (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:45:y:2014:i:c:p:105-116 DOI: 10.1016/j.jbankfin.2013.08.018 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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