Abstract

http://ssrn.com/abstract=1104765
 
 

References (27)



 
 

Citations (9)



 


 



Bond Illiquidity and Excess Volatility


Jack Bao


Board of Governors of the Federal Reserve System (FRB)

Jun Pan


Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

May 9, 2013

AFA 2009 San Francisco Meetings Paper
Charles A. Dice Center Working Paper No. 2010-20; Fisher College of Business Working Paper No. 2010-03-020

Abstract:     
We find that the empirical volatilities of corporate bond and CDS returns are higher than implied by equity return volatilities and the Merton model. This excess volatility may arise because structural models inadequately capture either fundamentals or illiquidity. Our evidence supports the latter explanation. We find little relation between excess volatility and measures of firm fundamentals and the volatility of firm fundamentals, but some relation with variables proxying for time-varying illiquidity. Consistent with an illiquidity explanation, firm-level bond portfolio returns, which average out bond-specific effects, significantly decrease excess volatility.

Number of Pages in PDF File: 52

working papers series





Download This Paper

Date posted: March 13, 2008 ; Last revised: May 19, 2013

Suggested Citation

Bao, Jack and Pan, Jun, Bond Illiquidity and Excess Volatility (May 9, 2013). AFA 2009 San Francisco Meetings Paper; Charles A. Dice Center Working Paper No. 2010-20; Fisher College of Business Working Paper No. 2010-03-020. Available at SSRN: http://ssrn.com/abstract=1104765 or http://dx.doi.org/10.2139/ssrn.1104765

Contact Information

Jack Bao
Board of Governors of the Federal Reserve System (FRB) ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Jun Pan (Contact Author)
Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )
77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
617-253-3083 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

Feedback to SSRN


Paper statistics
Abstract Views: 1,591
Downloads: 403
Download Rank: 41,283
References:  27
Citations:  9

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.437 seconds