Illiquidity or Credit Deterioration: A Study of Liquidity in the Us Corporate Bond Market During

40 Pages Posted: 26 Jun 2013

See all articles by Marti G. Subrahmanyam

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business

Rainer Jankowitsch

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Nils Friewald

Norwegian School of Economics (NHH); Centre for Economic Policy Research (CEPR)

Date Written: January 2012

Abstract

We investigate whether liquidity is an important price factor in the US corporate bond market. In particular, we focus on whether liquidity eects are more pronounced in periods of nancial crises, especially for bonds with high credit risk, using a unique data set covering more than 20,000 bonds, between October 2004 and December 2008. We employ a wide range of liquidity measures and nd that liquidity eects account for approximately 14% of the explained market-wide corporate yield spread changes. We conclude that the economic impact of the liquidity measures is signicantly larger in periods of crisis, and for speculative grade bonds.

Suggested Citation

Subrahmanyam, Marti G. and Jankowitsch, Rainer and Friewald, Nils, Illiquidity or Credit Deterioration: A Study of Liquidity in the Us Corporate Bond Market During (January 2012). NYU Working Paper No. 2451/31418, Available at SSRN: https://ssrn.com/abstract=2284661

Marti G. Subrahmanyam (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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Rainer Jankowitsch

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
Vienna, Vienna AT1020
Austria
+43 1 31 336 4340 (Phone)
+43 1 310 0580 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Nils Friewald

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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