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Estimating Liquidity Premia in the Spanish Government Securities Market

Author

Listed:
  • Francisco Alonso

    (Banco de España)

  • Roberto Blanco

    (Banco de España)

  • Ana del Río

    (Banco de España)

  • Alicia Sanchis

    (Banco de España)

Abstract

This paper investigates the presence of liquidity premia in the relative pricing of assets traded on the Spanish government securities market. First, we propose a classification of bonds into four different categories based on their degree of liquidity. Second, we estimate liquidity premia, including liquidity parameters in the estimation of the zero-coupon yield curve. The results suggest the existence of a liquidity premium for post-benchmark bonds (both strippable and non-strippable).

Suggested Citation

  • Francisco Alonso & Roberto Blanco & Ana del Río & Alicia Sanchis, 2000. "Estimating Liquidity Premia in the Spanish Government Securities Market," Working Papers 0017, Banco de España.
    • Handle: RePEc:bde:wpaper:0017
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    References listed on IDEAS

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    2. Litzenberger, Robert H & Rolfo, Jacques, 1984. "An International Study of Tax Effects on Government Bonds," Journal of Finance, American Finance Association, vol. 39(1), pages 1-22, March.
    3. Toni Gravelle, 1999. "Liquidity of the Government of Canada Securities Market: Stylised Facts and Some Market Microstructure Comparisons to the United States Treasury Market," CGFS Papers chapters, in: Bank for International Settlements (ed.), Market Liquidity: Research Findings and Selected Policy Implications, volume 11, pages 1-37, Bank for International Settlements.
    4. Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(3), pages 367-378, September.
    5. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    6. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
    7. Shen, Pu & Starr, Ross M., 1998. "Liquidity of the treasury bill market and the term structure of interest rates," Journal of Economics and Business, Elsevier, vol. 50(5), pages 401-417, September.
    8. Michael J. Fleming & Eli M. Remolona, 1996. "Price formation and liquidity in the U.S. treasuries market: evidence from intraday patterns around announcements," Research Paper 9633, Federal Reserve Bank of New York.
    9. Warga, Arthur, 1992. "Bond Returns, Liquidity, and Missing Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(4), pages 605-617, December.
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    Citations

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    Cited by:

    1. William Lin & Shih-Chuan Tsai & David Sun, 2011. "Price informativeness and predictability: how liquidity can help," Applied Economics, Taylor & Francis Journals, vol. 43(17), pages 2199-2217.
    2. William T. Lin & David S. Sun, 2007. "Liquidity-Adjusted Benchmark Yield Curves: A Look at Trading Concentration and Information," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 491-518.
    3. Simona Delle Chiaie & Bernardo Maggi, 2014. "Italian Government debt liquidity, is it of value?," DSS Empirical Economics and Econometrics Working Papers Series 2014/3, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
    4. Caio Ibsen Rodrigues De Almeida & Antonio Marcos Duarte & Cristiano Augusto Coelho Fernandes, 2003. "A Generalization Of Principal Component Analysis For Non-Observable Term Structures In Emerging Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 6(08), pages 885-903.
    5. Diaz, Antonio & Merrick, John Jr. & Navarro, Eliseo, 2006. "Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1309-1332, April.
    6. Coluzzi, Chiara & Ginebri, Sergio & Turco, Manuel, 2008. "Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08044, University of Molise, Department of Economics.
    7. Emma Berenguer & Ricardo Gimeno & Juan M. Nave, 2013. "Term structure estimation, liquidity-induced heteroskedasticity and the price of liquidity risk," Working Papers 1308, Banco de España.

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    More about this item

    Keywords

    liquidity; pricing; bonds;
    All these keywords.

    JEL classification:

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

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