Liquidity Pricing in Emerging Market Corporate Bonds

51 Pages Posted: 12 Dec 2019

See all articles by Lennart Dekker

Lennart Dekker

Tilburg University - Department of Finance

Frank De Jong

Tilburg University - Department of Finance

Date Written: November 25, 2019

Abstract

In this paper, we examine liquidity pricing in emerging market corporate bonds. We find average market-wide effective bid-ask spreads of 0.72%, which rise to 1.4% during the financial crisis. Turnover is closely linked to several liquidity characteristics such as issue size and age. Using portfolios based on these characteristics, we show that liquidity levels affect expected returns. However, evidence in favor of a priced liquidity risk factor is weak. The credit market risk premium is about 2% per year, consistent with evidence from developed markets.

Keywords: corporate bonds, emerging markets, liquidity

JEL Classification: G10, G12, G15

Suggested Citation

Dekker, Lennart and De Jong, Frank, Liquidity Pricing in Emerging Market Corporate Bonds (November 25, 2019). Available at SSRN: https://ssrn.com/abstract=3493243 or http://dx.doi.org/10.2139/ssrn.3493243

Lennart Dekker (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Frank De Jong

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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