61 Pages Posted: 21 Mar 2009 Last revised: 7 Jul 2011
Date Written: May 31, 2011
We analyze liquidity components of corporate bond spreads during 2005-2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.
Keywords: Corporate bonds, Liquidity, Liquidity risk, Subprime crisis
JEL Classification: C23, G01, G12
Suggested Citation: Suggested Citation
Dick-Nielsen, Jens and Feldhütter, Peter and Lando, David, Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis (May 31, 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1364635 or http://dx.doi.org/10.2139/ssrn.1364635