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Corporate Bond Liquidity during the COVID-19 Crisis.

Authors :
Kargar, Mahyar
Lester, Benjamin
Lindsay, David
Liu, Shuo
Weill, Pierre-Olivier
Zúñiga, Diego
Source :
Review of Financial Studies; Nov2021, Vol. 34 Issue 11, p5352-5401, 50p
Publication Year :
2021

Abstract

We study liquidity conditions in the corporate bond market during the COVID-19 pandemic. We document that the cost of trading immediately via risky-principal trades dramatically increased at the height of the sell-off, forcing customers to shift toward slower agency trades. Exploiting eligibility requirements, we show that the Federal Reserve's corporate credit facilities have had a positive effect on market liquidity. A structural estimation reveals that customers' willingness to pay for immediacy increased by about 200 bps per dollar of transaction, but quickly subsided after the Fed announced its interventions. Dealers' marginal cost also increased substantially but did not fully subside. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
08939454
Volume :
34
Issue :
11
Database :
Complementary Index
Journal :
Review of Financial Studies
Publication Type :
Academic Journal
Accession number :
153223529
Full Text :
https://doi.org/10.1093/rfs/hhab063