Corporate bond liquidity before and after the onset of the subprime crisis

Dick‐Nielsen, Jens; Feldhütter, Peter; Lando, David

doi:10.1016/j.jfineco.2011.10.009

Cited by 684 publications

(163 citation statements)

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“…Next, I describe three distinct approaches to decomposing tax-adjusted spreads into default and liquidity components. The first approach is based on Dick-Nielsen, Feldhutter, and Lando (2012) and uses transaction data to estimate the liquidity component. The second approach is based on Longstaff, Mithal, and Neis (2005) and uses CDS data to measure the default component.…”

Section: Methodsmentioning

confidence: 99%

“…The goal of this paper is to decompose tax-adjusted spreads into default and liquidity components. The first decomposition approach is closely related to the approach to estimating corporate bond liquidity spreads in Dick-Nielsen, Feldhutter, and Lando (2012). This approach involves estimating the liquidity spread directly and attributing the remaining spread to default risk.…”

Section: Transaction-based Approachmentioning

confidence: 99%

“…To arrive at the above conclusions, I use three distinct approaches to decomposing municipal bond spreads. The first approach follows from Dick-Nielsen, Feldhutter, and Lando (2012) and estimates the liquidity component of the spread using the transaction data. 2 The second approach follows from Longstaff, Mithal, and Neis (2005) and measures the default component with credit default swap (CDS) spreads.…”

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confidence: 99%

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Municipal Bond Liquidity and Default Risk

Schwert

2017

The Journal of Finance

188

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This paper examines the pricing of municipal bonds. I use three distinct, complementary approaches to decompose municipal bond spreads into default and liquidity components, and find that default risk accounts for 74% to 84% of the average spread after adjusting for tax‐exempt status. The first approach estimates the liquidity component using transaction data, the second measures the default component with credit default swap data, and the third is a quasi‐natural experiment that estimates changes in default risk around pre‐refunding events. The price of default risk is high given the rare incidence of municipal default and implies a high risk premium.

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Section: Methodsmentioning

confidence: 99%

Section: Transaction-based Approachmentioning

confidence: 99%

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confidence: 99%

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Municipal Bond Liquidity and Default Risk

Schwert

2017

The Journal of Finance

188

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“…First, it would be interesting to know the proportions of default risk and liquidity risks in the total yield spread. The recent paper by Dick-Nielse, Feldhütter, and Lando (2012) shows that liquidity risk may have represented up to 40% of the credit spread before and after the subprime crisis (2005)(2006)(2007)(2008)(2009). Although they controlled for default risk in their analysis, they did not explicitly analyze the proportion of default risk in the total credit spread.…”

Section: Resultsmentioning

confidence: 99%

Default and liquidity regimes in the bond market during the 2002–2012 period

Dionne

Chun

2013

Canadian J of Economics

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Using a real‐time random regime shift technique, we identify and discuss two different regimes in the dynamics of credit spreads during 2002–2012: a liquidity regime and a default regime. Both regimes contribute to the patterns observed in credit spreads. The liquidity regime seems to explain the predictive power of credit risk on the 2007–2009 NBER recession, whereas the default regime drives the persistence of credit spreads over the same recession. Our results complement the recent dynamic structural models as well as monetary and credit supply effects models by empirically supporting two important patterns in credit spreads: the persistence and the predictive ability toward economic downturns.

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“…Along with domestic private credit reduction sovereign defaults also increase the risk of a banking crisis (Borensztein et al 2007, Sandleris 2008. Dick-Nielsen et al (2012) and their findings show that sovereign debt crisis increase corporate bond spreads. Additionally Corsetti et al (2014) also find that higher risk premium on government debt leads to hire corporate credit spreads.…”

Section: Government Debt and Corporate Performancementioning

confidence: 98%

Sovereign Debt and Corporate Capital Structure: The Evidence From Selected European Countries During the Gglobal Financial and Economic Crisis

Mokhova¹,

Zinecker

2017

Business: Theory and Practice

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The recent Global financial crisis and the following European debt crisis show the significance of country financial stability and its impact on the private sector. Moreover, the sovereign debt as an essential element of government macroeconomic policy influences the financial performances of the companies and their future development and growth. The capital structure and financing decisions represent one of the most significant parts of company’s financial policy and its key to financial strength. There are a lot of external factors influencing the capital structure; however, due to the European debt crisis the aim of this study is to indicate the influence of sovereign debt on capital structure of the private held companies in different European countries. This study examines the evidence from European developed countries and emerging markets for the period 2005–2012, in order to compare the level of its impact on the capital structure according to the countries’ specifics. We find that after Global Financial Crisis the sovereign debt has tendency to increase in all investigated countries. Greece and Italy have the highest level of debt and it exceeds their Gross Domestic Product (GDP). In addition to that, the Czech Republic has the lowest level of sovereign debt to GDP, but at the same time the corporate capital structure exceeds 100%. The sovereign debt levels are strongly and statistically significantly correlated with each other, however, Hungarian debt has weaker relation with other countries. The findings also show the integration and interdependence of European countries. Moreover, Hungarian, Czech and German private sectors are the most depended on the level of sovereign debt.

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Corporate bond liquidity before and after the onset of the subprime crisis

Cited by 684 publications

References 41 publications

Municipal Bond Liquidity and Default Risk

Municipal Bond Liquidity and Default Risk

Default and liquidity regimes in the bond market during the 2002–2012 period

Sovereign Debt and Corporate Capital Structure: The Evidence From Selected European Countries During the Gglobal Financial and Economic Crisis

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