On the relationship between stock liquidity and corporate bond credit spreads

doi:10.3969/j.issn.0253-2778.2018.08.010

Abstract

Abstract: Based on the spillover effects between stock and bond markets in China, an endogenous default credit model which includes both outside and inside liquidity shocks to stock and bond markets was presented. The effects of outside and inside liquidity shocks on corporate bonds spreads were analyzed. An empirical analysis of corporate bonds traded in Shanghai and Shenzhen stock exchanges during 2008-01-01～2016-12-31 was presented, and the effects of liquidity shocks on corporate bonds spreads predicted by the model were confirmed. For debts with shorter maturities and higher risks, the effects are even more significant.

Key words: credit spread, stock liquidity, corporate bond pricing, liquidity shocks, endogenous default

CLC Number:

F832.5

ZHAO Jing, FANG Zhaoben. On the relationship between stock liquidity and corporate bond credit spreads[J]. Journal of University of Science and Technology of China, 2018, 48(8): 667-682.

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