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- Title
The Term Structure of Bond Liquidity.
- Authors
Gehde-Trapp, Monika; Schuster, Philipp; Uhrig-Homburg, Marliese
- Abstract
We analyze the impact of market frictions on the trading volume and liquidity premia of finite-maturity assets when investors differ in their trading needs. Our equilibrium model generates a clientele effect (frequently trading investors hold only short-term assets) and predicts i) a hump-shaped relation between trading volume and maturity, ii) lower trading volumes of older compared with younger assets, iii) an increasing liquidity term structure from ask prices, iv) a decreasing or U-shaped liquidity term structure from bid prices, and v) spillovers of liquidity from short-term to long-term maturities. Empirical tests for U.S. corporate bonds support our theoretical predictions.
- Subjects
UNITED States; LIQUIDITY (Economics); CORPORATE bonds; ECONOMIC equilibrium; BID price; ASKED price; MATURITY (Finance); BONDS (Finance)
- Publication
Journal of Financial & Quantitative Analysis, 2018, Vol 53, Issue 5, p2161
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109018000364