Abstract
We analyze the impact of market frictions on the trading volume and liquidity premia of finite-maturity assets when investors differ in their trading needs. Our equilibrium model generates a clientele effect (frequently trading investors hold only short-term assets) and predicts i) a hump-shaped relation between trading volume and maturity, ii) lower trading volumes of older compared with younger assets, iii) an increasing liquidity term structure from ask prices, iv) a decreasing or U-shaped liquidity term structure from bid prices, and v) spillovers of liquidity from short-term to long-term maturities. Empirical tests for U.S. corporate bonds support our theoretical predictions.
Sign-in/Register to access full text options 
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.
