A Study of Corporate Bond Liquidity

Abstract

In this paper we study the liquidity of the Norwegian corporate bond market. We utilize a methodology closely related to the one developed by Dick-Nielsen, Feldhütter, and Lando (2012), and find that the spread contribution from illiquidity is puzzling to disclose in the Norwegian corporate bond market due to the low trading activity. However, for one of our liquidity proxies, zero trading days, we tend to find a positive relationship with bond spreads. Furthermore, we find indications that the liquidity premium measured by the bid-ask spread exist from the first quarter of 2014 to third quarter of 2014.