Comparison Of Liquidity Measures Based On Corporate Bond Market

Employing a comprehensive database on transactions of corporate bonds issued by corporations, agencies and financial institutions, we compare the different liquidity measures for corporate bond—the bid-ask spread, the zero-return percentage, the Amihud illiquidity factor. The criteria of judging is based on the explanatory power of different liquidity measures in determining corporate bonds yield spread over the benchmark curve (equivalent-maturity Treasury bond or notes). It is found that liquidity plays a role in determining corporate bond yield spread and the different liquidity measures are found to have significant explanatory power. Our findings suggest that zero-return percentage is more powerful in explaining yield spread than other liquidity measures.The structure of this thesis is organized as follows. Chapter 1 is the introduction of this study, including the meaning, the brief methods and the framework. Chapter 2 presents a review of existing studies on liquidity measures, as well as the impact of liquidity on yield spread. Chapter 3 describes empirical methodology and details the variables used in this study. Chapter 4 explains in detail data and sample composition. Chapter 5 presents empirical results based on different liquidity measures and Chapter 6 concludes.The innovations of this thesis lie in the data, which is the ticker by ticker data. And this study applies the Amihud illiquidity factor into the corporate bond market. The limitation is that the estimate procedure is pooled OLS, without considering the fixed effect and random effect in the panel data.