We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies.

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Econometric Institute Research Papers
Erasmus School of Economics

Houweling, P., Mentink, A. A., & Vorst, T. (2003). Comparing possible proxies of corporate bond liquidity (No. EI 2003-49). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/1081