Internal Liquidity Risk in Corporate Bond Credit Spreads

摘要

The determinants of a substantial portion of bond credit spreads remain puzzled in literature. Through investigating corporate bond credit spreads from year 2000 to 2005, we find that corporate internal liquidity still significantly impacts on corporate bond credit spreads when controlling other well-known variables stated in literature. Additionally, we also find that there is a systematic internal liquidity risk factor which can capture market-wide bond credit spread changes to a large extent. It reveals that corporate internal liquidity risk should be incorporated into bond credit modeling.