The term structure of illiquidity premia

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper investigates the dynamics of the term structure of bond market illiquidity premia using data on German bond market segments which differ only with respect to their liquidity. We analyze the interaction between different parts of the term structure and identify economic factors that drive the illiquidity premia. We obtain three main results: (i) The term structure of illiquidity premia is U-shaped on average but its shape varies over time.(ii) There is a strict separation between the short end and the long end of the term structure of illiquidity premia, i.e. we find no evidence for spill-over effects across different maturities. Different economic factors drive different parts of the term structure. The short end is mainly driven by asset market volatilities which suggests a flight-to-liquidity effect. In contrast, the long end depends on long-term business cycle economic prospects. This suggests that different parts of the term structure are determined by different investor clienteles with different liquidity needs. (iii) There is a smooth transition from short-term to long-term illiquidity premia. The longer the time to maturity of a bond, the less important market volatilities are and the more important long-term economic prospects become.JEL Classification: G12, G13

Default, Liquidity and Crises: An Econometric Framework

“…The rise in liquidity premia in the early 2000s -concomitant with the collapse of the Internet bubble-is also found in U.S. data by Fontaine and Garcia (2009) [72], Longstaff (2004) [102] or Feldhütter and [69]. Furthermore, Kempf, Korn and Uhrig-Homburg (2010) [95] look for liquidity factors on euro bond markets and exhibit a long-term illiquidity premium that also presents a hump in the early 2000s. The fact that the liquidity factor is particularly high during crises periods (burst of the dotcom bubble and post-Lehman periods) is consistent with the findings of Beber, Brandt and Kavajecz (2009) [16] who pinpoint that investors primarily chase liquidity during market-stress periods.…”

Implied liquidity risk premium in the term structure of sovereign credit default swap and bond spreads

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Do social ties matter for corporate bond yield spreads? Evidence from China

“…In this study, our primary consideration is the price term (bond spreads) of corporate bond contracts. Much literature has analyzed the influencing factors of the spreads of bonds from multiple perspectives (Gürtler & Neelmeier, 2018;Kempf, Korn, & Uhrig-Homburg, 2012). Several of the studies of firm characteristics found that large firms, more profitable firms, high disclosure quality firms, and conservative accounting firms issued lower spreads on bonds (Ahmed, Billings, Morton, & Stanford Harris, 2002;Samet & Obay, 2014;Sengupta, 1998).…”