Comparing Possible Proxies of Corporate Bond Liquidity

39 Pages Posted: 1 Aug 2003

See all articles by Patrick Houweling

Patrick Houweling

Robeco Investment Research

Albert Mentink

AEGON Group - AEGON Asset Management

Ton Vorst

VU University Amsterdam - Department of Finance and Financial Sector Management; Tinbergen Institute

Abstract

We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies.

Keywords: liquidity, premiums, spreads, credit, corporate bonds, yields, fama-french model

JEL Classification: C13, G12

Suggested Citation

Houweling, Patrick and Mentink, Albert and Vorst, Ton A.C.F., Comparing Possible Proxies of Corporate Bond Liquidity. Journal of Banking and Finance, Vol. 29, No. 6, pp. 1331-1358, 2005; EFA 2003 Annual Conference Paper No. 298. Available at SSRN: https://ssrn.com/abstract=307419 or http://dx.doi.org/10.2139/ssrn.307419

Patrick Houweling (Contact Author)

Robeco Investment Research ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands
+31-10-2243538 (Phone)

HOME PAGE: http://www.robeco.com/quant

Albert Mentink

AEGON Group - AEGON Asset Management ( email )

P.O. Box 202
2501 CE The Hague
Netherlands

Ton A.C.F. Vorst

VU University Amsterdam - Department of Finance and Financial Sector Management ( email )

De Boelelaan 1105
NL-1081HV Amsterdam
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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