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Comparing Possible Proxies of Corporate Bond Liquidity
Patrick Houweling Robeco Quantitative Strategies Albert Mentink AEGON Group - AEGON Asset Management Ton Vorst VU University Amsterdam - Department of Finance and Financial Sector Management; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) Journal of Banking and Finance, Vol. 29, No. 6, pp. 1331-1358, 2005 EFA 2003 Annual Conference Paper No. 298 Abstract: We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies.
Keywords: liquidity, premiums, spreads, credit, corporate bonds, yields, fama-french model JEL Classifications: C13, G12 Accepted Paper SeriesDate posted: August 01, 2003 ; Last revised: January 14, 2007Suggested CitationContact Information
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