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Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds

Babson College, 320 Tomasso Hall, Babson Park, MA 02457, USA
Boston College, Fulton Hall, Room 340, Chestnut Hill, MA 02467, USA
Rutgers School of Business–Camden, 227 Penn Street, Camden, NJ 08102, USA
Author to whom correspondence should be addressed.
An earlier version of this paper entitled “Liquidity and the Pricing of Corporate Bond Issues” was presented at the 2009 Financial Management Association Annual Meeting.
J. Risk Financial Manag. 2019, 12(2), 86;
Received: 14 February 2019 / Revised: 24 April 2019 / Accepted: 3 May 2019 / Published: 13 May 2019
(This article belongs to the Special Issue Corporate Debt)
PDF [258 KB, uploaded 13 May 2019]


This paper studies the link between secondary market liquidity for a corporate bond and the bond’s yield spread at issuance. Using ex-ante measures of expected liquidity at the time of issuance, based on the characteristics of the underwriting syndicate, we find an economically large impact of liquidity on yield spreads. We estimate that a 10% increase in expected liquidity implies a decrease in the yield spread at issuance of between 8% and 14%. Our results suggest that liquidity has an important effect on firms’ cost of capital, and they contribute to the literature which examines the impact of liquidity on asset prices. View Full-Text
Keywords: corporate bonds; liquidity; primary market pricing corporate bonds; liquidity; primary market pricing
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Goldstein, M.A.; Hotchkiss, E.S.; Pedersen, D.J. Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds. J. Risk Financial Manag. 2019, 12, 86.

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