Pricing Illiquidity of Corporate Bonds Through Static and Dynamic Measures

Seoul Journal of Economics, Vol. 25, No. 3, pp. 279-316, 2012

38 Pages Posted: 5 Sep 2012

Date Written: August 30, 2012

Abstract

This paper studies the price impact of corporate bond illiquidity. Through dynamic panel estimation, price dispersion and resiliency, which have been used separately in extant studies, are simultaneously considered to price illiquidity. We find that the dynamic model, which has both measures, fits better than the static model that incorporates only price dispersion. We also confirm that the impact of the two measures systematically react to credit ratings of bonds. These results imply the importance of considering multiple measures to price illiquidity.

Keywords: bond spreads, illiquidity, price dispersion, persistency

JEL Classification: C23, C58, E44, G12

Suggested Citation

Miyakawa, Daisuke and Watanabe, Shuji, Pricing Illiquidity of Corporate Bonds Through Static and Dynamic Measures (August 30, 2012). Seoul Journal of Economics, Vol. 25, No. 3, pp. 279-316, 2012, Available at SSRN: https://ssrn.com/abstract=2141645

Daisuke Miyakawa (Contact Author)

Development Bank of Japan ( email )

9-1
Otemachi 1-chome Chiyoda-ku
Toyko, 100-0004
United States
+81-3-3244-1917 (Phone)
+81-3-3270-7084 (Fax)

Shuji Watanabe

Nihon University ( email )

Tokyo
Japan
+81-3-3219-3493 (Phone)
+81-3-3219-3493 (Fax)

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