Empirical analysis of liquidity risk premium based on bond age

摘要

By using panel data of corporate bond in Shenzhen Exchange and Shanghai Exchange we research on liquidity risk premium in corporate bond spread. We choose squared price return, issued amount, volume, trading turnover and bond age as corporate bond liquidity proxies to analyze liquidity risk. Squared price return is significant in the regression, and the squared price return could indicate to what extent the bond is underpriced. Meanwhile, corporate bond trading volumes increase, but liquidity risk premium decreases, so the corporate bond spread decreases. Also, the large issued amount means high liquidity. We find that the threshold of 12 months is the best in corporate bond market in Exchange in China, and the liquidity risk premium which presented by age is a very important part in corporate bond spread. The results above are consistent with our hypotheses. But in the regression, the variable of corporate bond trades is positively correlated with corporate bond spread, and it's different from the null hypothesis. We infer that there're several reasons, maybe too much missing data in the sample or the samples are in an economic crisis period. Overall, squared price return, issued amount, volume and trading turnover are proxies of liquidity risk, however they are less important than bond age.