Year-end Sale % OFF 
Abstract
We develop a structural model to quantify the effects of informational and noninformational frictions on bond market liquidity. We decompose the liquidity component of the yield spread into two parts: one caused by information asymmetry between current and new bond investors, and the other caused by noninformational frictions that generate additional transaction costs. Our calibrated model matches the observed turnover ratios across different rating classes. We find that information asymmetry accounts for 0.59% to 1.86% of the yield spread for investment-grade bonds and 3.46% to 11.20% for high-yield bonds. Liquidity injection may hurt market liquidity by inducing more informed trading.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
