Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis

Jens Dick-Nielsen, Peter Feldhütter, David Lando

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

We analyze liquidity components of corporate bond spreads during 2005–2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.
We analyze liquidity components of corporate bond spreads during 2005–2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.
SprogEngelsk
TidsskriftJournal of Financial Economics
Vol/bind103
Udgave nummer3
Sider471-492
ISSN0304-405X
DOI
StatusUdgivet - 2012

Emneord

  • Corporate bonds
  • Subprime crisis
  • Liquidity risk
  • Liquidity

Citer dette

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Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis. / Dick-Nielsen, Jens; Feldhütter, Peter; Lando, David.

I: Journal of Financial Economics, Bind 103, Nr. 3, 2012, s. 471-492.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

TY - JOUR

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AU - Feldhütter,Peter

AU - Lando,David

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N2 - We analyze liquidity components of corporate bond spreads during 2005–2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.

AB - We analyze liquidity components of corporate bond spreads during 2005–2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.

KW - Corporate bonds

KW - Subprime crisis

KW - Liquidity risk

KW - Liquidity

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DO - 10.1016/j.jfineco.2011.10.009

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