Bond Illiquidity and Excess Volatility

• 成果类型: Article
• 署名作者: Bao, Jack; Pan, Jun
• 署名单位: University System of Ohio; Ohio State University; Massachusetts Institute of Technology (MIT); National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hht037
• 发表日期: 2013
• 页码: 3068
• 关键词: CASH FLOW VOLATILITY; structural models; corporate-debt; credit; inference; spreads; ratios; COSTS; RISK

摘要

We find that the empirical volatilities of corporate bond and CDS returns are higher than implied by equity return volatilities and the Merton model. This excess volatility may arise because structural models inadequately capture either fundamentals or illiquidity. Our evidence supports the latter explanation. We find little relation between excess volatility and measures of firm fundamentals and the volatility of firm fundamentals but some relation with variables proxying for time-varying illiquidity. Consistent with an illiquidity explanation, firm-level bond portfolio returns, which average out bond-specific effects, significantly decrease excess volatility.