Measuring the Perceived Liquidity of the Corporate Bond Market

44 Pages Posted: 20 May 2020

See all articles by Sergey Chernenko

Sergey Chernenko

Purdue University - Department of Management

Aditya Sunderam

Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2020

Abstract

We propose a novel measure of bond market liquidity that does not depend on transaction data: the strength of the cross-sectional relationship between mutual fund cash holdings and fund flow volatility. Our measure captures how liquid funds perceive their portfolio holdings to be at a given point in time. The perceived liquidity of speculative grade and Rule 144A bonds is significantly lower than investment grade bonds in the cross section and deteriorated significantly following the 2008-9 financial crisis. Our measure can be applied in settings where either transaction data are not available or transactions are rare, including the markets for asset-backed securities, syndicated loans, and municipal bonds.

Keywords: liquidity, corporate bonds, mutual funds, municipal bonds

JEL Classification: G11, G23

Suggested Citation

Chernenko, Sergey and Sunderam, Aditya, Measuring the Perceived Liquidity of the Corporate Bond Market (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3583872 or http://dx.doi.org/10.2139/ssrn.3583872

Sergey Chernenko (Contact Author)

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States
(765) 494-4413 (Phone)

HOME PAGE: http://https://sites.google.com/site/chernenkosergey/

Aditya Sunderam

Harvard University ( email )

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