The Illiquidity of Corporate Bonds
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Pan_The illiquidity.pdf
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340.94 KB
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Author(s)
Bao, Jack
Pan, Jun
Wang, Jiang
Date Issued
June 2011
Journal
Journal of Finance
Publisher
American Finance Association/John Wiley & Sons, Inc.
Citation
Bao, Jack, Jun Pan, and Jiang Wang. “The Illiquidity of Corporate Bonds.” The Journal of Finance 66.3 (2011): 911–946. Web.
Version
Author's final manuscript
Abstract
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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
https://doi.org/10.1111/j.1540-6261.2011.01655.x
