Black, Jeffrey R., Stock, Duane and Yadav, Pradeep K. (2016). The pricing of different dimensions of liquidity: Evidence from government guaranteed bonds. J. Bank Financ., 71. S. 119 - 133. AMSTERDAM: ELSEVIER. ISSN 1872-6372

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Abstract

There are three important dimensions of liquidity: trading costs, depth, and resiliency. We investigate the relevance of each of these three dimensions of liquidity - separately and in conjunction - for the pricing of corporate bonds. Unlike previous studies, our sample allows us to cleanly separate the default and non-default components of yield spreads. We find that each of the above three dimensions of liquidity are priced factors. Overall, in our sample, a one standard deviation change in trading costs, resiliency, and depth measures lead to a change in non-default spreads of 5.00 basis points, 2.27 basis points, and 1.27 basis points, respectively. We also find that both bond-specific and market-wide dimensions of liquidity are priced in non-default spreads. Finally, we find that there does exist in some periods a small residual non-default yield spread that is consistent with an additional flight-to-extreme-liquidity premium reflecting investor preference for assets that enable quickest possible disengagement from the market when necessary. (C) 2016 Elsevier B.V. All rights reserved.

Item Type: Journal Article
Creators:
CreatorsEmailORCIDORCID Put Code
Black, Jeffrey R.UNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Stock, DuaneUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Yadav, Pradeep K.UNSPECIFIEDUNSPECIFIEDUNSPECIFIED
URN: urn:nbn:de:hbz:38-260118
DOI: 10.1016/j.jbankfin.2016.06.008
Journal or Publication Title: J. Bank Financ.
Volume: 71
Page Range: S. 119 - 133
Date: 2016
Publisher: ELSEVIER
Place of Publication: AMSTERDAM
ISSN: 1872-6372
Language: English
Faculty: Unspecified
Divisions: Unspecified
Subjects: no entry
Uncontrolled Keywords:
KeywordsLanguage
STOCK; MARKET; ILLIQUIDITY; RISK; ASK; COMPONENTS; SPREADMultiple languages
Business, Finance; EconomicsMultiple languages
Refereed: Yes
URI: http://kups.ub.uni-koeln.de/id/eprint/26011

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