IDEAS home Printed from https://ideas.repec.org/a/taf/ufajxx/v80y2024i3p103-127.html
   My bibliography  Save this article

Predicting Corporate Bond Illiquidity via Machine Learning

Author

Listed:
  • Axel Cabrol
  • Wolfgang Drobetz
  • Tizian Otto
  • Tatjana Puhan

Abstract

This paper tests the predictive performance of machine learning methods in estimating the illiquidity of US corporate bonds. Machine learning techniques outperform the historical illiquidity-based approach, the most commonly applied benchmark in practice, from both a statistical and an economic perspective. Gradient-boosted regression trees perform particularly well. Historical illiquidity is the most important single predictor variable, but several fundamental and return- as well as risk-based covariates also possess predictive power. Capturing nonlinear effects and interactions among these predictors further enhances forecasting performance. For practitioners, the choice of the appropriate machine learning model depends on the specific application.

Suggested Citation

  • Axel Cabrol & Wolfgang Drobetz & Tizian Otto & Tatjana Puhan, 2024. "Predicting Corporate Bond Illiquidity via Machine Learning," Financial Analysts Journal, Taylor & Francis Journals, vol. 80(3), pages 103-127, July.
  • Handle: RePEc:taf:ufajxx:v:80:y:2024:i:3:p:103-127
    DOI: 10.1080/0015198X.2024.2350952
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/0015198X.2024.2350952
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/0015198X.2024.2350952?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ufajxx:v:80:y:2024:i:3:p:103-127. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/ufaj20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.