Illiquidity Spillovers: Theory and Evidence from European Telecom Bond Issuance

60 Pages Posted: 23 Jun 2004

See all articles by Yigal Newman

Yigal Newman

affiliation not provided to SSRN

Michael Rierson

Barclays - Barclays Global Investors (BGI)

Date Written: January 13, 2004

Abstract

In a study of the European telecommunication-sector bond market, we find empirical evidence that a firm's new bond issue can temporarily inflate yield spreads of other bonds in its sector. We show that this effect seems unrelated to new fundamental information about the bond's issuer. Our results imply that an issuance of 15.5 billion Euros by Deutsche Telekom temporarily depressed the mark-to-market value of 100 billion Euros in outstanding European telecom debt by approximately 273 million Euros. This study is supported and motivated by a stylized model of a risk-averse liquidity-provider in which supply shocks, such as new issues, place price pressure on correlated securities.

Keywords: Bond issuance, Illiquidity spillovers, European telecom bonds

JEL Classification: G12, G14

Suggested Citation

Newman, Yigal and Rierson, Michael, Illiquidity Spillovers: Theory and Evidence from European Telecom Bond Issuance (January 13, 2004). AFA 2005 Philadelphia Meetings; EFA 2004 Maastricht Meetings Paper No. 2005; EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=497603 or http://dx.doi.org/10.2139/ssrn.497603

Yigal Newman (Contact Author)

affiliation not provided to SSRN

Michael Rierson

Barclays - Barclays Global Investors (BGI) ( email )

45 Fremont Street
San Francisco, CA 94105
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
364
Abstract Views
2,655
rank
81,139
PlumX Metrics