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"We study the exposure of the U.S. corporate bond returns to liquidity shocks of stocks and treasury bonds over the period 1973 to 2007. A decline in liquidity of stocks or Treasury bonds produces conflicting effects: Prices of investment-grade bonds rise while prices of speculative grade bonds fall substantially. This effect is regime-switching in nature and holds when the state of the economy is in a "stress" regime. The likelihood of being in such a regime can be predicted by macroeconomic and financial market variables that are associated with adverse economic conditions. Our model can predict the out-of-sample bond returns for the stress years 2008-2009. These effects are robust to controlling for other systematic risks (term and default). Our findings suggest the existence of time-varying liquidity risk of corporate bond returns and episodes of flight to liquidity"--National Bureau of Economic Research web site.
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Liquidity risk of corporate bond returns
2010, National Bureau of Economic Research
electronic resource /
in English
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Liquidity risk of corporate bond returns
2010, National Bureau of Economic Research
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Title from PDF file as viewed on 2/8/2011.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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