Liquidity and Bond Market Spreads

37 Pages Posted: 1 Aug 2003

See all articles by William Perraudin

William Perraudin

Imperial College London - Accounting, Finance, and Macroeconomics

Alex P. Taylor

Alliance Manchester Business School

Date Written: June 2003

Abstract

Recent research by Elton et al (2001) argues that investment-quality defaultable debt spreads reflect three factors: expected losses, risk premiums and taxes. In this paper, we sort bond price data on liquidity proxies (quote frequency, bond age and issue size) and show that an important additional component of spreads is a liquidity premium.

Keywords: Credit Spreads, Liquidity, Asset Pricing, Bond Yields

Suggested Citation

Perraudin, William and Taylor, Alex P., Liquidity and Bond Market Spreads (June 2003). Available at SSRN: https://ssrn.com/abstract=424060 or http://dx.doi.org/10.2139/ssrn.424060

William Perraudin (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Alex P. Taylor

Alliance Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom

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