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Explaining the On-The-Run Puzzle with Corporate Bonds.
- Source :
- Review of Pacific Basin Financial Markets & Policies; Jun2017, Vol. 20 Issue 2, p-1, 36p, 1 Illustration
- Publication Year :
- 2017
-
Abstract
- The on-the-run phenomenon is regularly found in the bond markets. It refers to the phenomenon of the yield difference observed when a new bond issue comes to market from the same issuer and gets a better price (lower yield given equivalent duration) from the market than the older issue. This paper proposes and tests a liquidity model to explain phenomenon introducing entropy as our liquidity measure. The yield differential results from the illiquidity cost of the older issue that has increased as a result of progressing through stages, which typically occur in an entropy process. We find that a model employing an entropy measure largely explains the on-the-run phenomenon, by accounting for over three-quarters of the liquidity differential for on-the-run corporate bonds. [ABSTRACT FROM AUTHOR]
- Subjects :
- BOND market
PRICES
LIQUIDITY (Economics)
ENTROPY
RATE of return
Subjects
Details
- Language :
- English
- ISSN :
- 02190915
- Volume :
- 20
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Review of Pacific Basin Financial Markets & Policies
- Publication Type :
- Academic Journal
- Accession number :
- 123899295
- Full Text :
- https://doi.org/10.1142/S0219091517500084