The Liquidity Premium in China’s Corporate Bond Market: A Stochastic Liquidity Discount Approach

China’s bond market has been ranked third globally; however, China’s corporate bonds are significantly less liquid than its stocks. Liquidity risk is an important component in China’s corporate bond spreads. In this paper, we propose a stochastic liquidity discount factor model to evaluate the liqui...

Celý popis

Uložené v:
Podrobná bibliografia
Vydané v:Risks (Basel) Ročník 10; číslo 7; s. 130
Hlavní autori: Min, Xiaoping, Ji, Min
Médium: Journal Article
Jazyk:English
Vydavateľské údaje: Basel MDPI AG 01.07.2022
Predmet:
Bond markets
Corporate bonds
Credit risk
Economic crisis
Elasticity
Interest rates
Liquidity
liquidity premium
liquidity spread
Merton model
Monte Carlo simulation
Prices
Risk premiums
stochastic liquidity discount
Stochastic models
Volatility
United States > US
China
ISSN:2227-9091, 2227-9091
On-line prístup:Získať plný text
Tagy: Pridať tag
Žiadne tagy, Buďte prvý, kto otaguje tento záznam!
Popis
Shrnutí:China’s bond market has been ranked third globally; however, China’s corporate bonds are significantly less liquid than its stocks. Liquidity risk is an important component in China’s corporate bond spreads. In this paper, we propose a stochastic liquidity discount factor model to evaluate the liquidity risk premium and its term structure in China’s corporate bond market. The Monte Carlo simulation technique is used to quantify the impact on the liquidity premium of various liquidity factors: the liquidity level, liquidity volatility, liquidity shock, and the liquidity elasticity. Our findings conclude that the liquidity level is the most significant component of a liquidity premium. The impact on the liquidity premium of other liquidity factors is all conditional on the liquidity level. In addition, the impact of liquidity shocks and volatility is also subject to the market’s equilibrium mechanism. Further, the term of a bond affects the premium both directly and indirectly through its influence on a bond’s liquidity.
Bibliografia:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:2227-9091
2227-9091
DOI:10.3390/risks10070130