A Deep Market in Israeli Corporate Bonds: Macro and Microeconomic Analysis in Light of the Accounting Standards

38 Pages Posted: 27 Oct 2020

See all articles by Gitit Gur-Gershgoren

Gitit Gur-Gershgoren

Israel Securities Authority; Gitit Gur Gershgoren

Elroi Hadad

Independent

Haim Kedar-Levy

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Date Written: October 11, 2020

Abstract

This article examines the question of whether a “deep market” for tradable corporate bonds exists in Israel, as defined in the international accounting standard (IAS-19) dealing with discounting long-term post-retirement obligations. The analysis was carried out with regard to two aspects of the term “deep market”: the macroeconomic aspect, which relates to the financial system's ability to provide liquidity (lines of credit) to the nonfinancial sector, and the microeconomic aspect, which relates to the size of liquidity premium in the Israeli corporate bond market. An out-of-sample examination of Israel, based on the macroeconomic analysis, indicates a probability of over 95 percent that Israel belongs to the group of countries with deep markets. The microeconomic analysis was carried out based on corporate-bond daily trading data from the beginning of 2004 to the beginning of 2014, categorized by CPIindexation sector and rating. The assessment results suggest that the liquidity premium for CPI-indexed corporate bonds rated AA- and above is similar to the premium measured for investment-grade corporate bonds in the US.

It is worth stressing that the analysis shown in this paper did not include the coronavirus episode. It might be that the dynamics governing the markets during and after the coronavirus episode are different, implying rules that are not part of the present research. Analyzing the data during the coronavirus episode is an interesting direction for future research.

Suggested Citation

Gur-Gershgoren, Gitit and Hadad, Elroi and Kedar-Levy, Haim, A Deep Market in Israeli Corporate Bonds: Macro and Microeconomic Analysis in Light of the Accounting Standards (October 11, 2020). Israel Economic Review, Vol. 18, No. 1 (2020), 139-176, Available at SSRN: https://ssrn.com/abstract=3715108

Gitit Gur-Gershgoren (Contact Author)

Israel Securities Authority ( email )

22 Kanfei Nesharim Street
Jerusalem 95464
Israel

Gitit Gur Gershgoren ( email )

Tzahal Street 104
Kiryat Ono, 55000
Israel

Elroi Hadad

Independent ( email )

Haim Kedar-Levy

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
(972) 8 6472569 (Phone)
(972) 8 6477697 (Fax)

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