The Impact Of Liquidity Risk On The Pricing Of Chinese Corporate Bonds

Corporate bonds,a tool being used broadly to raise money,is quite important for companies’ financing.In 2007,China lifted restrictions on the issuance of corporate bonds,and the corporate bond market is booming,especially in recent years.However,the research on the valuation and pricing of corporate bonds is far from enough.Based on the two-factor bond pricing model proposed by Fama and French(1993),this paper uses the ratio of zero trading days to construct a liquidity risk measure to study the pricing issue of corporate bond in China.This paper finds that there is a significant liquidity risk premium in Chinese corporate bonds,which remains robust after controlling the market factor,maturity factor and default factor.Based on the FamaFrench two-factor model,this paper constructs a four-factor pricing model including liquidity factor,market factor,maturity factor and default factor.The empirical results show that the four-factor bond pricing model has a high applicability in China’s corporate bond market.Compared with the traditional two-factor pricing model,this model has stronger explanatory power and forecasting ability.