Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis

By Jens Dick‐Nielsen, Peter Feldhütter, D. Lando. 2012

813 citations recorded by the source corpus.

We analyze liquidity components of corporate bond spreads during 2005–2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/07c3796bdd0c8ace53b1576e4fb49d0cca2173c9

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Citations in the corpus

Understanding FX Liquidity (2015, background): “Bao, Pan, and Wang (2011) and Dick-Nielsen, Feldhütter, and Lando (2012) analyze market liquidity on the corporate bonds market.”
A regression discontinuity design for ordinal running variables: Evaluating central bank purchases of corporate bonds (2019, background): “bond spreads at issuance could have been due to higher expected liquidity of the eligible bonds, it is instructive to compare the effect that we have estimated to liquidity premia of corporate bonds. Dick-Nielsen et al. (2012) estimate the liquidity premia of BBB US corporate bonds to lie in the ran”
The Volcker Rule and Market-Making in Times of Stress (2016, neutral): “…the PostVolcker Period with that during the other four sub-periods prior to the effective date of the Volcker Rule.11 The designations of the four pre-Volcker sub-periods are generally consistent with existing studies (e.g., Dick-Nielsen, Feldhutter, and Lando (2012), and Bessembinder et. al.”
Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle (2018, neutral): “, Dick-Nielsen et al. [2011] and Friewald et al. [2012]: How much of the soaring credit spread when the economy switches from boom to recession is due to increased credit risk, and how much is due to worsened secondary market liquidity? Our framework, which embeds aggregate states into the endogenou”
Financial statement comparability and credit risk (2013, positive): “The percentiles of roll for our sample are very similar to those reported in Dick-Nielsen et al. (2012).”
The Term Structure of Interbank Risk (2012, positive): “As proxies for corporate bond market liquidity, we use the Dick-Nielsen, Feldhutter, and Lando (2012) liquidity factors.”
Illiquidity or Credit Deterioration: A Study of Liquidity in the US Corporate Bond Market during Financial Crises (2012, background): “In general, they find a significant effect of liquidity, which increased with the onset of the subprime crisis.”
The Determinants of Recovery Rates in the US Corporate Bond Market (2014, methodology): “We expect that the liquidity eﬀects on prices that have been extensively documented in the literature on non-defaulted bonds (see, e.g., Bao et al., 2011; Dick-Nielsen et al., 2012; Friewald et al., 2012) will be exacerbated following default.”