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Determinants of Corporate Bond Trading: A Comprehensive Analysis

Author

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  • Edith Hotchkiss

    (Department of Finance, Carroll School of Management, Fulton Hall 340, Boston College, Chestnut Hill, MA, USA)

  • Gergana Jostova

    (Department of Finance, School of Business, George Washington University, Funger Hall Suite 501, 2201 G St NW, Washington, DC 20052, USA)

Abstract

This paper studies the determinants of trading volume and liquidity of corporate bonds. Using transactions data from a comprehensive dataset of insurance company trades, our analysis covers more than 17,000 US corporate bonds of 4,151 companies over a five-year period prior to the introduction of TRACE. Our transactions data show that a variety of issue- and issuer-specific characteristics impact corporate bond liquidity. Among these, the most economically important determinants of bond trading volume are the bond’s issue size and age — trading volume declines substantially as bonds become seasoned and are absorbed into less active portfolios. Stock-level activity also impacts bond trading volume. Bonds of companies with publicly traded equity are more likely to trade than those with private equity. Further, public companies with more active stocks have more actively traded bonds. Finally, we show that while the liquidity of high-yield bonds is more affected by credit risk, interest-rate risk is more important in determining the liquidity of investment-grade bonds.

Suggested Citation

  • Edith Hotchkiss & Gergana Jostova, 2017. "Determinants of Corporate Bond Trading: A Comprehensive Analysis," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-30, June.
    • Handle: RePEc:wsi:qjfxxx:v:07:y:2017:i:02:n:s2010139217500033
    DOI: 10.1142/S2010139217500033
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    5. Pinter, Gabor & Uslu, Semih, 2022. "Comparing search and intermediation frictions across markets," Bank of England working papers 974, Bank of England.
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    7. Roncalli, Thierry & Cherief, Amina & Karray-Meziou, Fatma & Regnault, Margaux, 2021. "Liquidity Stress Testing in Asset Management - Part 2. Modeling the Asset Liquidity Risk," MPRA Paper 108295, University Library of Munich, Germany.
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    9. ElBannan, Mona A. & Löffler, Gunter, 2024. "How effectively do green bonds help the environment?," Journal of Banking & Finance, Elsevier, vol. 158(C).
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