Nondefault Bond Spread and Market Trading Liquidity
We examine the relationship between the nondefault component of corporate bond spread and direct trading liquidity measures,which include the price impact of trades,transaction costs,and trading frequencies constructed from intraday bond transactions data. The default component of bond spread is controlled by the term structure of credit default swap (CDS). We use fixed e_ect models to control for unobservable firm heterogeneity and to identify the liquidity impacts based on the variations in the transaction based liquidity measures across bonds issued by the same firm. We find a clear positive significant relationship between illiquidity of intraday trading and the nondefault bond spread,which is weaker if the unobservable firm heterogeneity is not controlled for. The positive liquidity e_ect is the strongest for the high investmentgrade bond,but only significant for the low investment-grade bond with respect to price impact measures,and statistically inconclusive for the speculative-grade bond. Controlling for bond characteristics,such as coupon rate,issue size,time-to-maturity,and bond age,does not diminish the sign and significance of the liquidity measures based on price impact of trades and transaction costs,while some trading frequency measures are crowded out. Further diagnostics suggest that trading frequencies are highly correlated with bond characteristics and that the liquidity e_ects of price impact of trades and transaction costs are robust to whether swap yield or Treasury yield is used as risk-free rate.
Corporate bond yields credit default swaps liquidity
Song Han Hao Zhou
Capital Market Section,Federal Reserve Board,Mail Stop 89,Washington,DC 20551 USA Risk Analysis Section,Federal Reserve Board,Mail Stop 91,Washington,DC 20551 USA
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）