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Author: Hsien-Hsing Liao
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
The recent global financial crisis reveals the important role of internal liquidity risk in corporate credit risk. However, hardly have any existing studies investigated its effects on bond yield spreads. This study employs both bond- and market-level data to address the issue. Bond-level results show that corporate internal liquidity volatility significantly impacts bond yield spreads when controlling for well-known variables, traditional accounting measures of corporate debt servicing ability and an additional structural form credit risk measure (the cash flow volatility). Further, this study finds that a systematic internal liquidity risk factor can materially capture market-wide bond yield spread changes. Market-level results also show that market-level internal liquidity risk significantly explains the spreads of bond indexes when controlling for factors of bond and equity markets and other major macro state variables. We conclude that internal liquidity risk should be incorporated into bond yield spread modeling.
Author: Hsien-Hsing Liao
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
The recent global financial crisis reveals the important role of internal liquidity risk in corporate credit risk. However, hardly have any existing studies investigated its effects on bond yield spreads. This study employs both bond- and market-level data to address the issue. Bond-level results show that corporate internal liquidity volatility significantly impacts bond yield spreads when controlling for well-known variables, traditional accounting measures of corporate debt servicing ability and an additional structural form credit risk measure (the cash flow volatility). Further, this study finds that a systematic internal liquidity risk factor can materially capture market-wide bond yield spread changes. Market-level results also show that market-level internal liquidity risk significantly explains the spreads of bond indexes when controlling for factors of bond and equity markets and other major macro state variables. We conclude that internal liquidity risk should be incorporated into bond yield spread modeling.
Author: Stephanie Heck
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
Liquidity level and liquidity risk are priced in the cross-section of corporate bond yields and returns. In the first case the focus is on the individual liquidity level while in the second case it is on the exposure to a common liquidity factor. In this paper we focus on the impact of the liquidity level on yield spreads by acknowledging that liquidity is a latent variable with an important fraction of commonality. We first document the extent of this commonality in the US corporate bond market. Second we assess whether the relation to yield spreads is driven by this commonality or by the remaining idiosyncratic part. We find that a large fraction of the liquidity effect in fact stems from liquidity commonality. The impact of the bond-specific idiosyncratic liquidity level is minor overall, but increases in the post-crisis period and for some bond categories.
Author: Henry Hongren Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
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Book Description
We examine the impact of individual stock liquidity on corporate bond yield spreads in the U.S. market. By extending the endogenous-default model to include stock liquidity in the calculation of the bond value we show that a drop in stock liquidity will increase the firm's credit risk by increasing the firm's default boundary, leading to an increase of the credit spread. Our model is consistent with the sharp increase of credit risk premiums and the “yield spread spike” phenomenon in corporate bond markets during the financial crisis. We present empirical evidence supportive of our model.
Author: Song Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 66
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Book Description
Author: Rob C. Sperna Weiland
Publisher:
ISBN:
Category :
Languages : en
Pages : 81
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Book Description
We analyze the dynamic interactions between credit and liquidity risk and their impact on bond prices and risk. We propose a novel way of modeling credit-liquidity interactions through mutually exciting processes and develop a corresponding Bayesian estimation procedure. Using US corporate bond transaction data, we show that there is evidence of feedback between credit and liquidity risk and that this feedback is stronger for lower-rated bonds. We find that, on average, the credit-induced liquidity component accounts for 8% (AAA/AA) to 17% (B and lower) of total yield spreads, but in the most distressed periods it can account for over 40%.
Author: Sergei Ivanovich Tishchenko
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages :
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Book Description
Abstract: Corporate bond bid-ask spreads explain 40 percent of the temporal variation in yield spreads when daily individual bond data are used. Other known yield spread determinants such as the level and slope of the treasury yield curve, aggregate equity returns and implied volatility jointly explain only 10 percent of the yield spread variation. On average, approximately 60 percent of the bid-ask spread is impounded in the corporate yield spread. The estimates of the yield spread sensitivity to bid-ask spread changes are remarkably stable across bonds with different Standard & Poor's credit grades ranging from AAA to CC. This evidence supports the view that corporate bond liquidity is an important yield spread determinant.
Author: Delong Li
Publisher: International Monetary Fund
ISBN: 1513573411
Category : Business & Economics
Languages : en
Pages : 51
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Book Description
We analyze the long-run impact of emerging-market sovereign bond yields on corporate bond yields, finding that the average pass-through is around one. The pass-through is larger in countries with greater sovereign risks and where sovereign bonds are more liquid. It is also greater for corporate bonds with lower ratings, shorter maturities, and for those issued by financial companies and government-related firms. Our results support theoretical arguments that corporate and sovereign yields are linked together through credit risks and liquidity premiums. Consequently, high sovereign risks may slowdown growth by persistently increasing private sector borrowing costs.
Author: Jean Helwege
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
Corporate bond spreads are affected by both credit risk and liquidity and it is difficult to disentangle the two factors empirically. In this paper we separate out the credit risk component by examining bonds that are issued by the same firm and that trade on the same day. Our sample of bond pairs provides two yield spreads which, if they differ, vary only because of differences in liquidity. We then investigate the determinants of the differences in yield spreads. We find that standard liquidity measures do a poor job of explaining spreads, and that incorporating the information from other bonds issued by the firm and from bonds of other firms can significantly improve the explanatory power of those liquidity measures. Still, a significant portion of the spread is left unexplained and it is largely driven by a common unknown factor. We conclude that good proxies for the liquidity component of corporate bond spreads remain elusive.
Author: Amrut J. Nashikkar
Publisher:
ISBN:
Category :
Languages : en
Pages : 47
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Book Description
Recent research has shown that default risk accounts for only a part of the total yield spread on risky corporate bonds relative to their riskless benchmarks. One candidate for the unexplained portion of the spread is a premium for the illiquidity in the corporate bond market. We investigate this issue byrelating the liquidity of corporate bonds, as measured by their ease of market access, to the non-default component of their respective corporate bond yields using the portfolio holdings database of the largest custodian in the market. The ease of access of a bond is measured using a recently developed measurecalled latent liquidity that weights the turnover of funds holding the bond by their fractional holdings of the bond. We use the credit default swap (CDS) prices of the bond issuer to control for the credit risk of a bond. At an aggregate level, we find a contemporaneous relationship between aggregate latent liquidity and the average non-default component in corporate bond yields. Additionally, for individualbonds, we find that bonds with higher latent liquidity have a lower non-default component of their yield spread. We also document that bonds that are held by funds that exhibit greater buying activity command lower spreads (i.e., are more expensive), while the opposite is true for those that exhibitgreater selling activity. We also find that the liquidity in the CDS market has an impact on bond pricing, over and above bond-specific liquidity effects.
Author: 蔡佩伶
Publisher:
ISBN:
Category :
Languages : en
Pages : 102
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Book Description
