Liquidity Pricing in Emerging Market Corporate Bonds
51 Pages Posted: 12 Dec 2019
Date Written: November 25, 2019
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: Suggested Citation