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Liquidity Risk Premia in Corporate Bond Markets
Open accessAbstract
This paper explores the role of liquidity risk in the pricing of corporate bonds. We show that corporate bond returns have significant exposures to fluctuations in treasury bond liquidity and equity market liquidity. Further, this liquidity risk is a priced factor for the expected returns on corporate bonds, and the associated liquidity risk premia help to explain the credit spread puzzle. In terms of expected returns, the total estimated liquidity risk premium is around 0.6% per annum for US long-maturity investment grade bonds. For speculative grade bonds, which have higher exposures to the liquidity factors, the liquidity risk premium is around 1.5% per annum. We find very similar evidence for the liquidity risk exposure of corporate bonds for a sample of European corporate bond prices.
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Citations
Cited by
The effect of pro-environmental preferences on bond prices: Evidence from green bonds
Zerbib, O. D. (2019) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2018.10.012 · Cited by 1,379
Amihud, Y., Mendelson, H., & Pedersen, L. H. (2005) · Foundations and Trends® in Finance · doi:10.1561/0500000003 · Cited by 820
Corporate bond liquidity before and after the onset of the subprime crisis
Dick-Nielsen, J., Feldhütter, P., & Lando, D. (2012) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.10.009 · Cited by 786
Metadata
- Authors
- de Jong, F., & Driessen, J.
- Venue
- Quarterly Journal of Finance
- Publisher
- World Scientific Pub Co Pte Lt
- Published
- 2012-06
- Volume
- 02
- Issue
- 02
- Pages
- 1250006
- ISSN
- 2010-1392 (ISSN-L)
- 2010-1406
- OpenAlex
- W3125868889
- Cited by
- 244
- References
- 0
- FWCI
- 30.25
- Type
- journal article
- Language
- en
- Open access
- green
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- de Jong, F., & Driessen, J. (2012). Liquidity Risk Premia in Corporate Bond Markets. Quarterly Journal of Finance. https://doi.org/10.1142/s2010139212500061
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
