Pricing Illiquidity of Corporate Bonds through Static and Dynamic Measures

Abstract

This paper studies the price impact of corporate bond illiquidity.

Through dynamic panel estimation, price dispersion and resiliency,

which have been used separately in extant studies, are simultaneously

considered to price illiquidity. We find that the dynamic model, which

has both measures, fits better than the static model that incorporates

only price dispersion. We also confirm that the impact of the two

measures systematically react to credit ratings of bonds. These results

imply the importance of considering multiple measures to price

illiquidity.