Keywords: Bond liquidity, pricing
Abstract: Because illiquid bonds may be relatively poorly priced, the ability to infer investor
perceptions of changes in a banking organization's financial health from such bonds
may be obscured. To examine the time-series effect of trading frequency on
subordinated debt spreads, we consider the liquidity of subordinated debt for large,
complex U.S. banking organizations over the 1987:Q2 - 2002:Q4 period. Since trade
volumes are unobservable, we construct various measures of weekly trading frequency
from observed bond prices. Using these indirect liquidity measures, we find evidence
that trading frequency does significantly affect observed subordinated debt spreads.
We also provide estimates for the premium of illiquidity.
Full paper (1582 KB PDF)
Home | FEDS | List of 2005 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: January 26, 2005