Dissertation/Thesis Abstract

Liquidity, credit risk and pricing of corporate bond
by Sun, Xiaoli, M.Sc., Singapore Management University (Singapore), 2008, 77; 1489319
Abstract (Summary)

Employing a comprehensive database on transactions of corporate bonds issued by corporations, agencies and financial institutions, we compare the different liquidity measures--bid-ask spread, zero-return percentage, Amihud illiquidity factor for the corporate bond market. The criteria of judging is based on the explanatory power of different liquidity measures in determining yield spread over the benchmark curve (equivalent-maturity Treasury bond or notes). The conclusion is that liquidity plays a role in determining corporate bond yield spread. There are significant differences in the explanatory power of the different liquidity measures; among the liquidity measures, zero-return percentage works best. Preliminary findings, based on the mean correlation analysis and portfolios approach, give the intuitive results of suggesting that zero-return percentage is a better predictor of yields spread than the other liquidity measures--bid-ask spread and Amihud illiquidity factor. Controlling the effect of credit rating, the zero-return percentage increases R-square dramatically, with incremental R-square of 7%. Model specification test shows that the model with zero-return percentage as liquidity measures gives the smallest BIC whatever form the models are. We also compare the zero-return percentage with trading-based liquidity measure. The results show that zero-return percentage is more powerful in explaining yield spread than other liquidity measures.

Indexing (document details)
Advisor: Wu, Chunchi
Commitee:
School: Singapore Management University (Singapore)
Department: Lee Kong Chian School of Business
School Location: Republic of Singapore
Source: MAI 49/04M, Masters Abstracts International
Source Type: DISSERTATION
Subjects: Business administration, Banking
Keywords: Benchmark curve, Bond yield spread, Corporate bonds, Liquidity measures
Publication Number: 1489319
ISBN: 9781124503141
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