Liquidity dimensions in the U.S. corporate bond market

Antonio Díaz and Ana Escribano

International Review of Economics & Finance, 2022, vol. 80, issue C, 1163-1179

Abstract: We examine the role of five liquidity dimensions in the U.S. corporate bond market from a broad set of liquidity proxies. Based on the observed different level of liquidity shown by investment-grade and high-yield bonds, we analyze the ability of several liquidity proxies and dimensions to classify bonds within these two main credit rating classes. Our findings show that, at the individual level, all tightness-based liquidity metrics outperform the other measures. In this way, a few proxies measuring transaction costs can help detect high-yield bonds whose liquidity behaves similarly to that of investment-grade bonds. At the dimension level, we find that the theoretical separation into liquidity dimensions is empirically corroborated, but the joint consideration of all of them only brings a slight improvement in results.

Keywords: Liquidity; Corporate bonds; Liquidity proxies; Liquidity dimensions; High-yield bonds (search for similar items in EconPapers)
JEL-codes: C38 G11 G12 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:1163-1179

DOI: 10.1016/j.iref.2022.04.008

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