Liquidity risk and expected corporate bond returns

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

168 Scopus Citations
View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)628-650
Journal / PublicationJournal of Financial Economics
Volume99
Issue number3
Publication statusPublished - Mar 2011

Abstract

This paper studies the pricing of liquidity risk in the cross section of corporate bonds for the period from January 1994 to March 2009. The average return on bonds with high sensitivities to aggregate liquidity exceeds that for bonds with low sensitivities by about 4% annually. The positive relation between expected corporate bond returns and liquidity beta is robust to the effects of default and term betas, liquidity level, and other bond characteristics, as well as to different model specifications, test methodologies, and a variety of liquidity measures. The results suggest that liquidity risk is an important determinant of expected corporate bond returns. © 2010 Elsevier B.V.

Research Area(s)

  • Bond pricing, Default and term beta, Flight-to-quality, Liquidity risk

Citation Format(s)

Liquidity risk and expected corporate bond returns. / Lin, Hai; Wang, Junbo; Wu, Chunchi.

In: Journal of Financial Economics, Vol. 99, No. 3, 03.2011, p. 628-650.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review