The Impact of Liquidity Risk on Corporate Bond Pricing in China

Abstract

This paper investigates the impact of liquidity risk on bond pricing in the bond market after the end of COVID-19. The paper hypothesizes a significant impact of liquidity risk on bond pricing in the bond market and introduces several variables such as liquidity ratio, coupon rate, issuance cycle, return on equity (ROE), and issuance volume for testing. The paper analyses and compares the impact of liquidity risk on corporate bond pricing through least squares (OLS) regression analysis (data from the iFinD database). The study shows that the liquidity risk of bonds has a significant impact on the market interest rate of corporate bonds, which directly proves that the impact of liquidity risk on corporate bond pricing in the bond market is highly significant. This paper reveals that liquidity risk is crucial to bond pricing in the bond market that liquidity risk is a key factor in determining the degree of stability of bond prices, and that illiquidity leads to increased uncertainty in bond pricing and market volatility. Investors need to have a more comprehensive perspective to rationally price bonds under the disturbance of liquidity risk and pay attention to the impact of liquidity risk on the bond market.