Liquidity Risk and the Cross-Section of Expected Corporate Bond Returns

摘要

We provide a comprehensive empirical analysis on the role of liquidity in corporate bond pricing using a long-span transaction data sample. We document a strong positive and economically significant relation between expected corporate bond returns and liquidity risk, controlling for the effects of default and term betas and bond characteristics. This relation is robust to different model specifications and a variety of liquidity measures. Results suggest that liquidity risk is an important determinant of required corporate bond returns.