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

September 2014

Asian Finance Association (AsFA) 2013 Conference

Abstract:     
This paper examines how liquidity and investors' heterogeneous liquidity preferences interact to affect asset pricing. We construct measures of liquidity preferences using data on insurer corporate bond holdings, and find that investors' preferences are highly persistent over time and related to investment horizons and funding constraints. We provide evidence that investors vary widely in their preferences and, more importantly, evidence for liquidity clientele. Further, we find evidence that liquidity clienteles affect corporate bond prices --- specifically, both the level and volatility of liquidity premia are substantially attenuated among corporate bonds heavily held by investors with a weak preference for liquidity.

Number of Pages in PDF File: 59

Keywords: Corporate Bond Holdings, Liquidity Clientele, Corporate Bond Liquidity and Spreads

JEL Classification: G01, G12, G22, C23

working papers series





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Date posted: May 24, 2013 ; Last revised: September 11, 2014

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 (September 2014). 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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