Measuring Liquidity in Bond Markets

Schestag, Raphael; Schuster, Philipp; Uhrig-Homburg, Marliese

doi:10.2139/ssrn.2328370

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Measuring Liquidity in Bond Markets

Forthcoming in The Review of Financial Studies

58 Pages Posted: 20 Sep 2013 Last revised: 30 Jan 2016

See all articles by Raphael Schestag

Raphael Schestag

Karlsruhe Institute of Technology (KIT) - Financial Engineering and Derivatives Department

Marliese Uhrig-Homburg

Karlsruhe Institute of Technology (KIT) - Institute for Finance

Date Written: August 13, 2015

Abstract

In the literature, there is no consensus on a common approach to measure bond liquidity. This paper is the first to comprehensively compare all commonly employed liquidity measures based on intraday and daily data for the U.S. corporate bond market. We find that high-frequency measures based on intraday data are very strongly correlated implying that previous results should be robust regarding the chosen measure. Most low-frequency proxies based on daily data generally also measure transaction costs well. However, three proxies clearly take the lead: the high-low spread estimator from Corwin and Schultz (2012), Roll (1984), and Hasbrouck’s (2009) Gibbs measure.

Keywords: bond liquidity, transaction costs, bid-ask spread, price impact, asset pricing

JEL Classification: G11, G12

Suggested Citation: Suggested Citation

Schestag, Raphael and Schuster, Philipp and Uhrig-Homburg, Marliese, Measuring Liquidity in Bond Markets (August 13, 2015). Forthcoming in The Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=2328370 or http://dx.doi.org/10.2139/ssrn.2328370