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Estimating the term structure of corporate bond liquidity premiums: An analysis of default free bank bonds

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  • Leal, Diego
  • Stanhouse, Bryan
  • Stock, Duane

Abstract

Using proxies for conversion cost parameters in conjunction with a special set of default free corporate bonds, we empirically establish that the term structure of liquidity spreads was positively sloped in the financial crisis period of 2008 and negatively sloped in the subsequent post crisis period. Importantly, these results indicate the segment of the term structure that provides the largest liquidity premiums to lenders for alternative economic scenarios. At the same time, for different financial epochs, the liquidity spreads associated with different times to maturity are clear to those who issue debt.

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  • Leal, Diego & Stanhouse, Bryan & Stock, Duane, 2020. "Estimating the term structure of corporate bond liquidity premiums: An analysis of default free bank bonds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:intfin:v:67:y:2020:i:c:s1042443120301013
    DOI: 10.1016/j.intfin.2020.101217
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    3. Aljohani, Bader M. & Fadul, Abubaker & Asiri, Maram S. & Alkhathami, Abdulrahman D. & Hasan, Fakhrul, 2024. "Volatility transmission in the property market during two inflationary periods: The 2008–2009 global financial crisis and the COVID-19 crisis," Research in International Business and Finance, Elsevier, vol. 70(PB).

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    More about this item

    Keywords

    Term structure; Liquidity premium; Corporate bonds; Search models;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G19 - Financial Economics - - General Financial Markets - - - Other

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