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

Jens Dick-Nielsen, Peter Feldhütter, David Lando

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

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.
Original languageEnglish
JournalJournal of Financial Economics
Volume103
Issue number3
Pages (from-to)471-492
ISSN0304-405X
DOIs
Publication statusPublished - 2012

Cite this

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

In: Journal of Financial Economics, Vol. 103, No. 3, 2012, p. 471-492.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis

AU - Dick-Nielsen, Jens

AU - Feldhütter, Peter

AU - Lando, David

PY - 2012

Y1 - 2012

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

U2 - 10.1016/j.jfineco.2011.10.009

DO - 10.1016/j.jfineco.2011.10.009

M3 - Journal article

VL - 103

SP - 471

EP - 492

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

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ER -