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Article

Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds †

1
Babson College, 320 Tomasso Hall, Babson Park, MA 02457, USA
2
Boston College, Fulton Hall, Room 340, Chestnut Hill, MA 02467, USA
3
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; https://doi.org/10.3390/jrfm12020086
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)
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
MDPI and ACS Style

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. https://doi.org/10.3390/jrfm12020086

AMA Style

Goldstein MA, Hotchkiss ES, Pedersen DJ. Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds. Journal of Risk and Financial Management. 2019; 12(2):86. https://doi.org/10.3390/jrfm12020086

Chicago/Turabian Style

Goldstein, Michael A., Edith S. Hotchkiss, and David J. Pedersen. 2019. "Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds" Journal of Risk and Financial Management 12, no. 2: 86. https://doi.org/10.3390/jrfm12020086

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