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Liquidity Risk and Corporate Bond Yield Spread: Evidence from China

Author

Listed:
  • Yinghui Chen

    (School of Accounting, Zhongnan University of Economics and Law)

  • Lunan Jiang

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

Abstract
This paper investigates the contribution of liquidity risk to Chinese corporate bond spreads. We calculate corporate bond spreads based on the full treasury yield curve and establish a set of liquidity measures of the Chinese corporate bonds. Our empirical study shows that liquidity premium accounts for a relatively smaller portion of corporate bond spread in China, although the market liquidity is low and corporate bond issuers are strictly pre-screened. These findings are interesting, as the developed markets have better liquidity and less pre-issuance restriction, and liquidity premium still explains a relatively larger portion of corporate bond spread. Besides, we also explore the determinants of Chinese corporate bond liquidity and default premiums.

Suggested Citation

  • Yinghui Chen & Lunan Jiang, 2019. "Liquidity Risk and Corporate Bond Yield Spread: Evidence from China," CFDS Discussion Paper Series 2019/9, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    • Handle: RePEc:fds:dpaper:201909
    as

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    File URL: http://cfds.henuecon.education/images/dpaper/WP_9_2019_Corporate_Bond_Liquidity1.pdf
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    More about this item

    Keywords

    Yield spread; Liquidity risk; Default risk;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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