37 Pages Posted: 1 Aug 2003
Date Written: June 2003
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: Suggested Citation
Perraudin, William and Taylor, Alex P., Liquidity and Bond Market Spreads (June 2003). EFA 2003 Annual Conference Paper No. 879. Available at SSRN: https://ssrn.com/abstract=424060 or http://dx.doi.org/10.2139/ssrn.424060