Corporate Bond Liquidity during the COVID-19 Crisis

By Mahyar Kargar, Benjamin Lester, David Lindsay, Shuo Liu, Pierre-Olivier Weill, Diego Zúñiga. The Review of financial studies, 2020

196 citations recorded by the source corpus.

Abstract We study liquidity conditions in the corporate bond market during the COVID-19 pandemic. We document that the cost of trading immediately via risky-principal trades dramatically increased at the height of the sell-off, forcing customers to shift toward slower agency trades. Exploiting eligibility requirements, we show that the Federal Reserve’s corporate credit facilities have had a positive effect on market liquidity. A structural estimation reveals that customers’ willingness to pay for immediacy increased by about 200 bps per dollar of transaction, but quickly subsided after the Fed announced its interventions. Dealers’ marginal cost also increased substantially but did not fully subside.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/31bd66f374553e5668d9b70bb51a7742d9398039

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Citations in the corpus

In sickness and in debt: The COVID-19 impact on sovereign credit risk (2020, unknown): “…on economic growth ( Gormsen and Koijen, 2020 ) and financial markets, including corporate fixed income ( O’Hara and Zhou, 2020; Haddad et al., 2020; Kargar et al., 2020; Boyarchenko et al., 2020; Fahlenbrach et al., 2020; Falato et al., 2020 ), Treasury ( He et al., 2020; Fleming and Ruela, 2020;…”
Mutual Fund Performance and Flows during the COVID-19 Crisis (2020, unknown): “…of equity markets to COVID-19 is analyzed in a growing number of studies.2 In the bond market, liquidity evaporated in March 2020, not only for corporate bonds (e.g., Kargar et al. 2020; O’Hara and Zhou 2020) but also for the usually liquid Treasuries (e.g., Schrimpf, Shin, and Sushko 2020).”
Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1 (2020, unknown): “…(modeling the pandemic as a large negative shock to the utility of consumption).4 In finance, several studies highlight the credit market access and liquidity consequences of the Covid-19 pandemic (Au et al. (2020); Ferrando (2020); Kargar et al. (2020); Ma et al. (2020); Ozik et al. (2020)).”
When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response (2020, unknown): “However, they do not imply an absence of trading frictions— for example, Kargar et al. (2021) document increases in trading costs—or that these frictions are not important to understand overall price movements.”
Treasury inconvenience yields during the COVID-19 crisis (2020, background): “…works on the COVID-19 stress of fixed-income markets include Boyarchenko et al. (2020) , D’Amico et al. (2020) , Haddad et al. (2020) , Kargar et al. (2020) , Qiu and Nozawa (2020) , and O’Hara and Zhou (2020) on corporate bonds, Chen et al. (2021) on agency mortgage-backed…”
Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets (2020, unknown): “Overall, our work complements recent studies of bond market disruptions in the COVID-19 crisis ( Haddad et al., 2020; Kargar et al., 2020 ) by zeroing in on bond funds.”