The Illiquidity of Corporate Bonds
This paper examines the illiquidity of corporate bonds and its asset-pricing implications. Using transactions data from 2003 to 2009, we show that the illiquidity in corporate bonds is substantial, significantly greater than what can be explained by bid–ask spreads. We establish a strong link betwee...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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American Finance Association/John Wiley & Sons, Inc.
2012
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| Online Access: | http://hdl.handle.net/1721.1/75381 https://orcid.org/0000-0003-0161-9465 https://orcid.org/0000-0002-8261-0261 |
| _version_ | 1826206272593068032 |
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| author | Bao, Jack Pan, Jun Wang, Jiang |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Bao, Jack Pan, Jun Wang, Jiang |
| author_sort | Bao, Jack |
| collection | MIT |
| description | This paper examines the illiquidity of corporate bonds and its asset-pricing implications. Using transactions data from 2003 to 2009, we show that the illiquidity in corporate bonds is substantial, significantly greater than what can be explained by bid–ask spreads. We establish a strong link between bond illiquidity and bond prices. In aggregate, changes in market-level illiquidity explain a substantial part of the time variation in yield spreads of high-rated (AAA through A) bonds, overshadowing the credit risk component. In the cross-section, the bond-level illiquidity measure explains individual bond yield spreads with large economic significance. |
| first_indexed | 2024-09-23T13:26:30Z |
| format | Article |
| id | mit-1721.1/75381 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T13:26:30Z |
| publishDate | 2012 |
| publisher | American Finance Association/John Wiley & Sons, Inc. |
| record_format | dspace |
| spelling | mit-1721.1/753812022-09-28T14:17:00Z The Illiquidity of Corporate Bonds Bao, Jack Pan, Jun Wang, Jiang Sloan School of Management Pan, Jun Wang, Jiang This paper examines the illiquidity of corporate bonds and its asset-pricing implications. Using transactions data from 2003 to 2009, we show that the illiquidity in corporate bonds is substantial, significantly greater than what can be explained by bid–ask spreads. We establish a strong link between bond illiquidity and bond prices. In aggregate, changes in market-level illiquidity explain a substantial part of the time variation in yield spreads of high-rated (AAA through A) bonds, overshadowing the credit risk component. In the cross-section, the bond-level illiquidity measure explains individual bond yield spreads with large economic significance. Charles A. Dice Center for Research in Financial Economics J.P. Morgan & Co. 2012-12-11T16:29:31Z 2012-12-11T16:29:31Z 2011-06 Article http://purl.org/eprint/type/JournalArticle 0022-1082 1540-6261 http://hdl.handle.net/1721.1/75381 Bao, Jack, Jun Pan, and Jiang Wang. “The Illiquidity of Corporate Bonds.” The Journal of Finance 66.3 (2011): 911–946. Web. https://orcid.org/0000-0003-0161-9465 https://orcid.org/0000-0002-8261-0261 en_US http://dx.doi.org/10.1111/j.1540-6261.2011.01655.x Journal of Finance Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf American Finance Association/John Wiley & Sons, Inc. MIT web domain |
| spellingShingle | Bao, Jack Pan, Jun Wang, Jiang The Illiquidity of Corporate Bonds |
| title | The Illiquidity of Corporate Bonds |
| title_full | The Illiquidity of Corporate Bonds |
| title_fullStr | The Illiquidity of Corporate Bonds |
| title_full_unstemmed | The Illiquidity of Corporate Bonds |
| title_short | The Illiquidity of Corporate Bonds |
| title_sort | illiquidity of corporate bonds |
| url | http://hdl.handle.net/1721.1/75381 https://orcid.org/0000-0003-0161-9465 https://orcid.org/0000-0002-8261-0261 |
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