Abstract

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Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis


Jens Dick-Nielsen


Copenhagen Business School - Department of Finance

Peter Feldhütter


London Business School

David Lando


Copenhagen Business School - Department of Finance

May 31, 2011

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
We analyze liquidity components of corporate bond spreads during 2005-2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.

Number of Pages in PDF File: 61

Keywords: Corporate bonds, Liquidity, Liquidity risk, Subprime crisis

JEL Classification: C23, G01, G12

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Date posted: March 21, 2009 ; Last revised: July 7, 2011

Suggested Citation

Dick-Nielsen, Jens and Feldhütter, Peter and Lando, David, Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis (May 31, 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1364635 or http://dx.doi.org/10.2139/ssrn.1364635

Contact Information

Jens Dick-Nielsen (Contact Author)
Copenhagen Business School - Department of Finance ( email )
Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark
Peter Feldhütter
London Business School ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
David Lando
Copenhagen Business School - Department of Finance ( email )
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
+45 3815 3600 (Fax)
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