Illiquidity Premiums in International Corporate Bond Markets

53 Pages Posted: 18 Apr 2024

See all articles by Yiguo Sun

Yiguo Sun

University of Guelph

Delong Li

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

Mitchell Riddell

University of Toronto, Department of Economics, Students

David Adler

CFA Institute

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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: Asset pricing, Bid-ask spreads, Emerging economies, Illiquidity premium, International corporate bond.

Suggested Citation

Sun, Yiguo and Li, Delong and Riddell, Mitchell and Adler, David, Illiquidity Premiums in International Corporate Bond Markets. Available at SSRN: https://ssrn.com/abstract=4798799 or http://dx.doi.org/10.2139/ssrn.4798799

Yiguo Sun (Contact Author)

University of Guelph ( email )

Guelph, Ontario
Canada

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

David Adler

CFA Institute ( email )

915 East High Street
Charlottesville, VA 22902
United States

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