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A Global Liquidity Factor for Fixed Income Pricing

Andreas Gintschel


Christian Wiehenkamp

RiskLab GmbH

June 13, 2009

Liquidity premiums have been widely documented for equity and bond markets. However, there is a lack of easily implementable measures of systematic liquidity for bond markets, which are typically far less liquid. We show that a simple liquidity factor - based on the difference between corporate bond spreads and credit default swaps - is signifcantly associated with returns in a wide range of fixed income markets. The corresponding liquidity premium is time-varying but persistent and drives a fair amount of serial and cross-sectional variation in fixed income prices. Moreover, liquidity exposure varies predictably with maturity and credit rating suggesting a ight-to-quality phenomenon.

Number of Pages in PDF File: 36

Keywords: Liquidity, Bond Market, Asset pricing, Factor Models

JEL Classification: G12, G15, G21

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Date posted: December 18, 2008 ; Last revised: August 12, 2009

Suggested Citation

Gintschel, Andreas and Wiehenkamp, Christian, A Global Liquidity Factor for Fixed Income Pricing (June 13, 2009). Available at SSRN: http://ssrn.com/abstract=1316820 or http://dx.doi.org/10.2139/ssrn.1316820

Contact Information

Andreas Gintschel
JPMorgan ( email )
Junghofstrasse 14
Frankfurt, 60311
+49 69 7124 2195 (Phone)
Christian Wiehenkamp (Contact Author)
RiskLab GmbH
Seidlstr. 24-24a
Munich, 80335
HOME PAGE: http://www.risklab.com
Feedback to SSRN

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