Abstract

http://ssrn.com/abstract=2269894
 
 

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Liquidity Premium in the Eye of the Beholder: An Analysis of the Clientele Effect in the Corporate Bond Market


Jing-Zhi Huang


Pennsylvania State University - University Park - Department of Finance

Zhenzhen Sun


Siena College - School of Business

Tong Yao


University of Iowa - Henry B. Tippie College of Business

Tong Yu


University of Rhode Island - College of Business Administration

December 8, 2013

Asian Finance Association (AsFA) 2013 Conference

Abstract:     
This paper examines how liquidity and the heterogeneous liquidity preferences of investors interact to affect asset pricing. We use insurance firms' corporate bond holdings and measures of corporate bond illiquidity to quantify investors' liquidity preference. We find a wide dispersion of liquidity preference across investors. Such liquidity preferences persist over time and, importantly, are related to characteristics associated with investment horizons. Further, we find empirical evidence for the effect of liquidity clientele on bond pricing--the liquidity premium is substantially attenuated among corporate bonds heavily held by investors with a penchant for illiquidity.

Number of Pages in PDF File: 56

Keywords: Liquidity Clientele Effect, Corporate Bond Illiquidity, Corporate Bond Holdings, Credit Risk

JEL Classification: G01, G12, G22, C23

working papers series


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Date posted: May 24, 2013 ; Last revised: December 9, 2013

Suggested Citation

Huang, Jing-Zhi and Sun, Zhenzhen and Yao, Tong and Yu, Tong, Liquidity Premium in the Eye of the Beholder: An Analysis of the Clientele Effect in the Corporate Bond Market (December 8, 2013). Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: http://ssrn.com/abstract=2269894 or http://dx.doi.org/10.2139/ssrn.2269894

Contact Information

Jing-Zhi Jay Huang (Contact Author)
Pennsylvania State University - University Park - Department of Finance ( email )
University Park, PA 16802
United States
HOME PAGE: http://www.personal.psu.edu/jxh56
Zhenzhen Sun
Siena College - School of Business ( email )
515 Loudon Road
Loudonville, NY 12110
United States
518-782-6830 (Phone)
Tong Yao
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
Tong Yu
University of Rhode Island - College of Business Administration ( email )
Kingston, RI 02881
United States
(401) 874-7415 (Phone)
(401) 874-4312 (Fax)
HOME PAGE: http://www.cba.uri.edu/tong
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