Illiquidity premiums in international corporate bond markets

53 Pages Posted: 24 Jul 2022

See all articles by Delong Li

Delong Li

University of Guelph - Gordon S. Lang School of Business and Economics

Mitchell Riddell

University of Toronto, Department of Economics, Students

Yiguo Sun

University of Guelph

David Adler

CFA Institute

Multiple version iconThere are 2 versions of this paper

Date Written: July 4, 2022

Abstract

This article examines the impact of illiquidity levels on corporate bond pricing with a novel international dataset, including both advanced and emerging economies. Results show that less liquid corporate bonds which possess wider bid-ask spreads display higher expected returns and credit spreads globally. However, after controlling for common risk factors, illiquidity premiums remain significant exclusively in emerging markets, where investing in less liquid corporate bonds can generate sizable abnormal returns both before and after transaction costs. We further show that money-market liquidity, capital-account openness, and financial stability can contribute to cross-country differences in illiquidity premiums.

Keywords: corporate bonds, liquidity level, liquidity premium, emerging markets, credit spreads

JEL Classification: G12,G15

Suggested Citation

Li, Delong and Riddell, Mitchell and Sun, Yiguo and Adler, David, Illiquidity premiums in international corporate bond markets (July 4, 2022). Available at SSRN: https://ssrn.com/abstract=4153877 or http://dx.doi.org/10.2139/ssrn.4153877

Delong Li

University of Guelph - Gordon S. Lang School of Business and Economics ( email )

Guelph, ON, Canada
Guelph

Mitchell Riddell

University of Toronto, Department of Economics, Students ( email )

150 St. George Street
Toronto, Ontario
Canada

Yiguo Sun (Contact Author)

University of Guelph ( email )

Guelph, Ontario
Canada

David Adler

CFA Institute ( email )

915 East High Street
Charlottesville, VA 22902
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
303
Abstract Views
965
Rank
167,305
PlumX Metrics