Abstract

http://ssrn.com/abstract=1762564
 
 

References (42)



 
 

Citations (3)



 


 



An Asset Pricing Approach to Liquidity Effects in Corporate Bond Markets


Dion Bongaerts


Erasmus University Rotterdam (EUR) - Finance

Frank De Jong


Tilburg University - Department of Finance

Joost Driessen


Tilburg University - Department of Finance; CentER Tilburg University

March 12, 2012


Abstract:     
We use an asset pricing approach to compare the effects of expected liquidity and liquidity risk on expected U.S. corporate bond returns. Liquidity measures are constructed for bond portfolios using a Bayesian approach to estimate Roll’s measure. The results show that expected bond liquidity and exposure to equity market liquidity risk affect expected bond returns, and that these liquidity effects explain a substantial part of the credit spread puzzle. In contrast, we find robust evidence that exposure to corporate bond liquidity shocks carries an economically negligible risk premium. We develop a simple theoretical model that can explain this finding.

Number of Pages in PDF File: 65

Keywords: Liquidity premium, liquidity risk, corporate bonds, credit spread puzzle

JEL Classification: C51, G12, G13

working papers series





Download This Paper

Date posted: April 23, 2011 ; Last revised: March 14, 2012

Suggested Citation

Bongaerts, Dion and De Jong, Frank and Driessen, Joost, An Asset Pricing Approach to Liquidity Effects in Corporate Bond Markets (March 12, 2012). Available at SSRN: http://ssrn.com/abstract=1762564 or http://dx.doi.org/10.2139/ssrn.1762564

Contact Information

Dion Bongaerts
Erasmus University Rotterdam (EUR) - Finance ( email )
Burgemeester Oudlaan 50
Rotterdam, 3062PA
Netherlands
+31 (0) 10 40 82 790 (Phone)
+31 (0) 10 40 89 017 (Fax)
HOME PAGE: http://www.rsm.nl/portal/page/portal/home/faculty/academic_departments/finance/faculty_and_staff/fac
Frank De Jong (Contact Author)
Tilburg University - Department of Finance ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Joost Driessen
Tilburg University - Department of Finance ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
CentER Tilburg University ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Feedback to SSRN


Paper statistics
Abstract Views: 2,001
Downloads: 574
Download Rank: 20,562
References:  42
Citations:  3

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.328 seconds