Liquidity Premium in the Eye of the Beholder: An Analysis of the Clientele Effect in the Corporate Bond Market

53 Pages Posted: 24 May 2013 Last revised: 4 Oct 2018

See all articles by Xuanjuan Chen

Xuanjuan Chen

Shanghai University of Finance and Economics

Jing-Zhi Huang

Pennsylvania State University - University Park - Department of Finance

Zhenzhen Sun

University of Massachusetts Dartmouth; University of Massachusetts Dartmouth

Tong Yao

University of Iowa - Henry B. Tippie College of Business

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Date Written: July 2018

Abstract

This paper examines how liquidity and investors' heterogeneous liquidity preferences interact to affect asset pricing. Using data on insurers' corporate bond holdings, we find that the illiquidity of corporate bond portfolios varies widely and persistently across insurers, and is related to insurers' investment horizons and funding constraints, consistent with the notion of liquidity clientele. We further find that liquidity clienteles affect corporate bond prices|specifically, liquidity premia are lower among corporate bonds heavily held by investors with a weaker preference for liquidity.

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

JEL Classification: G01, G12, G22, C23

Suggested Citation

Chen, Xuanjuan and Huang, Jing-Zhi Jay 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 (July 2018). Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: https://ssrn.com/abstract=2269894 or http://dx.doi.org/10.2139/ssrn.2269894

Xuanjuan Chen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
Dartmouth, MA 02747-2300
United States

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
N Dartmouth, MA 02747-2300
United States

Tong Yao

University of Iowa - Henry B. Tippie College of Business ( email )

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Tong Yu

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

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