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

34 Pages Posted: 10 Feb 2009

See all articles by Jens Dick-Nielsen

Jens Dick-Nielsen

Copenhagen Business School - Department of Finance

Peter Feldhütter

Copenhagen Business School

David Lando

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 9, 2009

Abstract

We analyze liquidity components of corporate bond spreads by combining the superior data quality of transaction-level corporate bond prices available through TRACE with the unique natural experiment provided by the onset of the sub-prime crisis. We find that before the onset of the crisis, liquidity premia for the most liquid segment of investment grade bonds were small but they increased dramatically at the onset of the crisis. Among the liquidity proxies examined, the Amihud price-impact measure and a measure of transaction costs are the strongest drivers of liquidity both across rating and time. In contrast to earlier studies we find no positive relationship between the number of days a bond does not trade and the yield spread.

Keywords: Corporate bonds, Yield spreads, Liquidity, Subprime Crisis, TRACE

JEL Classification: G10, G12

Suggested Citation

Dick-Nielsen, Jens and Feldhütter, Peter and Lando, David, Corporate Bond Liquidity Before and after the Onset of the Subprime Crisis (February 9, 2009). EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1339910 or http://dx.doi.org/10.2139/ssrn.1339910

Jens Dick-Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

Peter Feldhütter

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

David Lando

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
+45 3815 3600 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
177
Abstract Views
1,188
rank
12,559
PlumX Metrics