Does trading frequency affect subordinated debt spreads?
Author InfoChristopher Bianchi Diana Hancock Laura Kawano Abstract Because illiquid bonds may be relatively poorly priced, the ability to infer investor perceptions of changes in a banking organization’s financial health from such bonds may be obscured. To examine the time-series effect of trading frequency on subordinated debt spreads, we consider the liquidity of subordinated debt for large, complex U.S. banking organizations over the 1987:Q2 – 2002:Q4 period. Since trade volumes are unobservable, we construct various measures of weekly trading frequency from observed bond prices. Using these indirect liquidity measures, we find evidence that trading frequency does significantly affect observed subordinated debt spreads. We also provide estimates for the premium of illiquidity. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In ca
