Corporate Bond Illiquidity and Bond Return Synchronicity

Posted: 14 Aug 2020 Last revised: 23 Nov 2020

See all articles by Zehua Zhang

Zehua Zhang

Hunan University

Ran Zhao

San Diego State University

Date Written: June 20, 2020


This paper provides an innovative theoretical model and empirical evidence for how the illiquidity of corporate bonds, as trading noise, dampens firm-specific information incorporated into bond prices. We find a negative relation between bond illiquidity and synchronicity, and this empirical relation remains after applying robustness checks and endogeneity controls. Consistent with theoretical model implications, the effect of bond illiquidity as information friction is more pronounced for bonds with lower market sensitivity and for firms with higher degrees of information uncertainty and operating in weaker information environments. We also explore general bond return synchronicity determinants, including both bond attributes and firm fundamentals.

Keywords: bond illiquidity, return synchronicity, price informativeness, credit rating, institutional ownership

JEL Classification: G10, G12, G14, G24, G32

Suggested Citation

Zhang, Zehua and Zhao, Ran, Corporate Bond Illiquidity and Bond Return Synchronicity (June 20, 2020). Available at SSRN: or

Zehua Zhang

Hunan University ( email )

Lushan Road, Yuelu District
Changsha, Hunan

Ran Zhao (Contact Author)

San Diego State University ( email )

5500 Campanile Dr
San Diego, CA 92182
United States

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