Liquidity, credit quality, and the relation between volatility and trading activity : Evidence from the corporate bond market
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Pages (from-to) | 183-203 |
| Journal / Publication | Journal of Banking & Finance |
| Volume | 50 |
| Online published | 18 Oct 2014 |
| Publication status | Published - Jan 2015 |
Link(s)
Abstract
This paper investigates the roles of illiquidity and credit risk in determining the relations between price volatility of a bond and its trading frequency and trade size based on a large transaction dataset from October 2004 to June 2012. We find a positive relation between volatility and trading frequency and a negative relation between volatility and trade size. Consistent with the prediction of the search-based theory, the relations are much stronger for illiquid and risky bonds. Furthermore, both liquidity and credit risk become more important in times of stress and their effects are reinforcing. Results strongly suggest that search frictions and credit risk are important factors driving the relation between volatility and trading activity in the corporate bond market.
Research Area(s)
- Credit risk, Flights-to-liquidity, Flights-to-quality, Interactive effects, Search frictions, Volatility, Volume
Citation Format(s)
Liquidity, credit quality, and the relation between volatility and trading activity : Evidence from the corporate bond market. / Wang, Junbo; Wu, Chunchi.
In: Journal of Banking & Finance, Vol. 50, 01.2015, p. 183-203.Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
