Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds
Michael A. Goldstein (),
Edith S. Hotchkiss () and
David J. Pedersen ()
Additional contact information
Michael A. Goldstein: Babson College, 320 Tomasso Hall, Babson Park, MA 02457, USA
Edith S. Hotchkiss: Boston College, Fulton Hall, Room 340, Chestnut Hill, MA 02467, USA
David J. Pedersen: Rutgers School of Business–Camden, 227 Penn Street, Camden, NJ 08102, USA
Journal of Risk and Financial Management, 2019, vol. 12, issue 2, 1-17
This paper studies the link between secondary market liquidity for a corporate bond and the bond’s yield spread at issuance. Using ex-ante measures of expected liquidity at the time of issuance, based on the characteristics of the underwriting syndicate, we find an economically large impact of liquidity on yield spreads. We estimate that a 10% increase in expected liquidity implies a decrease in the yield spread at issuance of between 8% and 14%. Our results suggest that liquidity has an important effect on firms’ cost of capital, and they contribute to the literature which examines the impact of liquidity on asset prices.
Keywords: corporate bonds; liquidity; primary market pricing (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:12:y:2019:i:2:p:86-:d:230642
Access Statistics for this article
Journal of Risk and Financial Management is currently edited by Prof. Dr. Michael McAleer
More articles in Journal of Risk and Financial Management from MDPI, Open Access Journal
Bibliographic data for series maintained by XML Conversion Team ().