Transcription of The Illiquidity of Corporate Bonds
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The Illiquidity of Corporate Bonds
The Illiquidity of Corporate BondsJack Bao, Jun Pan and Jiang Wang May 28, 2010 AbstractThis paper examines the Illiquidity of Corporate Bonds and its asset-pricing implicationsusing an empirical measure of Illiquidity based on the magnitude of transitory pricemovements. Relying on transaction-level data for a broad cross-section of corporatebonds from 2003 through 2009, we show that the Illiquidity in Corporate Bonds is sub-stantial, significantly greater than what can be explained by bid-ask spreads. We alsofind a strong commonality in the time variation of bond Illiquidity , which rises sharplyduring the 2008 crisis.
1 Introduction The illiquidity of the US corporate bond market has captured the interest and attention of researchers, practitioners and policy makers alike.
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