J-liquidity measure: The term structure of the liquidity premium in Japan |
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Institution: | 1. Department of Psychology, Fordham University, New York, NY, United States;2. College Board, NY, United States |
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Abstract: | We interpret the yield spread between Japanese government-guaranteed bonds and government bonds as market liquidity, which we refer to as the J-liquidity measure. Our model-free approach not only provides the term structure of the liquidity premium, but also captures the impact of illiquidity events and the illiquidity condition of the Japanese fixed-income market. We empirically show that the long-term factor of the liquidity premium curve is driven by the volatility of the short-term rate. The liquidity measure is provided publicly for future applications. |
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Keywords: | Bond liquidity Liquidity risk Term structure of the liquidity premium |
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