Measuring the Perceived Liquidity of the Corporate Bond Market

Sergey Chernenko and Adi Sunderam

No 27092, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a novel measure of bond market liquidity that does not depend on transaction data: the strength of the cross-sectional relationship between mutual fund cash holdings and fund flow volatility. Our measure captures how liquid funds perceive their portfolio holdings to be at a given point in time. The perceived liquidity of speculative grade and Rule 144A bonds is significantly lower than investment grade bonds in the cross section and deteriorated significantly following the 2008-9 financial crisis. Our measure can be applied in settings where either transaction data are not available or transactions are rare, including the markets for asset-backed securities, syndicated loans, and municipal bonds.

JEL-codes: G12 G23 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-fmk and nep-ore
Note: AP CF
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Citations: View citations in EconPapers (4)

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