ISSN 0253-2778

CN 34-1054/N

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On the relationship between stock liquidity and corporate bond credit spreads

  • 1.

    Dept. of Statistics and Finance, School of Management, University of Science and Technology of China, Hefei 230026, China

  • 2.

    School of Economics, Hefei University of Technology, Hefei 230601, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2018.08.010
  • Received Date: 18 October 2017
  • Accepted Date: 05 February 2018
  • Rev Recd Date: 05 February 2018
  • Publish Date: 31 August 2018
    Abstract

  • Abstract

    Based on the spillover effects between stock and bond markets in China, an endogenous default credit model which includes both outside and inside liquidity shocks to stock and bond markets was presented. The effects of outside and inside liquidity shocks on corporate bonds spreads were analyzed. An empirical analysis of corporate bonds traded in Shanghai and Shenzhen stock exchanges during 2008-01-01～2016-12-31 was presented, and the effects of liquidity shocks on corporate bonds spreads predicted by the model were confirmed. For debts with shorter maturities and higher risks, the effects are even more significant.

    Abstract

    Based on the spillover effects between stock and bond markets in China, an endogenous default credit model which includes both outside and inside liquidity shocks to stock and bond markets was presented. The effects of outside and inside liquidity shocks on corporate bonds spreads were analyzed. An empirical analysis of corporate bonds traded in Shanghai and Shenzhen stock exchanges during 2008-01-01～2016-12-31 was presented, and the effects of liquidity shocks on corporate bonds spreads predicted by the model were confirmed. For debts with shorter maturities and higher risks, the effects are even more significant.
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    • References(41)
  • [1]
    BAO J, PAN J, WANG J. The illiquidity of corporate bonds[J]. Journal of Finance, 2012, 66(3): 911-946.
    [2]
    HE Z G, XIONG W. Rollover risk and credit risk[J]. Journal of Finance, 2012, 67(2): 391-430.
    [3]
    LELAND H E, TOFT K B. Optimal capital structure, endogenous bankruptcy, and the term structure of credit spreads[J]. Journal of Finance, 1996, 51(3): 987-1019.
    [4]
    HUANG H H, HUANG H Y, OXMAN J J. Stock liquidity and corporate bond yield spreads: Theory and evidence[J]. Journal of Financial Research, 2015, 38(1): 59-91.
    [5]
    陈学彬, 曾裕峰. 中美股票市场和债券市场联动效应的比较研究——基于尾部风险溢出的视角[J]. 经济管理, 2016, 38(7): 1-13.
    CHEN Xuebin, ZENG Yufeng. A comparative study of co-movement between stock and bond markets in China and the US: Based on the perspective of tail risk spillover effect[J]. Economic Management Journal, 2016, 38(7): 1-13.
    [6]
    BRUNNERMEIER M K, PEDERSEN L H. Market liquidity and funding liquidity[J]. Review of Financial Studies, 2009, 22(6): 2201-2238.
    [7]
    MERTON R C. On the pricing of corporate debt: The risk structure of interest rates[J]. Journal of Finance, 1974, 29(2): 449-470.
    [8]
    BLACK F, COX J C. Valuing corporate securities: Some effects of bond indenture provisions[J]. Journal of Finance, 1976, 31(2): 351-367.
    [9]
    LONGSTAFF F A, SCHWARTZ E. A simple approach to valuing risky fixed and floating rate debt[J]. Journal of Finance, 1995, 50(3):789-819.
    [10]
    JARROW R A, TURNBULL S M. Pricing options on derivative securities subject to credit risk[J]. Journal of Finance, 1995, 50(1): 53-85.
    [11]
    DUFFIE D, SINGLETON K J. Modeling term structure of defaultable bonds[J]. The Review of Financial Studies, 1999, 12(4): 687-720.
    [12]
    COLLIN-DUFRESNE P, GOLDSTEIN R S, MARTIN J S. The determinants of credit spread changes[J]. Journal of Finance, 2001, 56(6): 2177-2207.
    [13]
    CAMPBELL J Y, TAKSLER G B. Equity volatility and corporate bond yields[J]. Journal of Finance, 2003, 58(6): 2321-2349.
    [14]
    HUANG J Z, HUANG M. How much of the corporate-treasury yield spread is due to credit risk?[J]. Review of Asset Pricing Studies, 2012, 2(2): 153-202.
    [15]
    LONGSTAFF F A, MITHAL S, NEIS E. Corporate yield spreads: Default risk or liquidity? New evidence from the credit default swap market[J]. Journal of Finance, 2004, 60(5): 2213-2253.
    [16]
    CHEN L, LESMOND D A, WEI J. Corporate yield spreads and bond liquidity[J]. Journal of Finance, 2007, 62(1): 119-149.
    [17]
    CHORDIA T, SARKAR A, SUBRAHMANYAM A. An empirical analysis of stock and bond market liquidity[J]. Review of Financial Studies, 2003, 18(18): 85-129.
    [18]
    ODDERS-WHITE E R, READY M J. Credit ratings and stock liquidity[J]. Review of Financial Studies, 2005, 19(1): 119-157.
    [19]
    ACHARYA V V, SCHAEFER S, ZHANG Y. Liquidity risk and correlation risk: A clinical study of the General Motors and Ford downgrade of May 2005[J]. Quarterly Journal of Finance, 2015, 5: 1550006.
    [20]
    DAS S R, HANOUNA P. Hedging credit: Equity liquidity matters[J]. Journal of Financial Intermediation, 2009, 18(1): 112-123.
    [21]
    何平, 金梦. 信用评级在中国债券市场的影响力[J]. 金融研究, 2010(4):15-28.
    [22]
    赵静, 方兆本. 中国公司债信用利差决定因素——基于结构化理论的实证研究[J]. 经济管理, 2011, 33(11): 138-148.
    ZHAO Jing, FANG Zhaoben. The determinants of credit spread in Chinese corporate debt market: An empirical research based on structural models[J]. Economic Management Journal, 2011, 33(11): 138-148.
    [23]
    王安兴, 解文增, 余文龙. 中国公司债利差的构成及影响因素实证分析[J]. 管理科学学报, 2012, 15(5):32-41.
    WANG Anxing, XIE Wenzeng, YU Wenlong. Empirical research on China’s corporate bond yield spread[J]. Journal of Management Sciences in China, 2012, 15(5): 32-41.
    [24]
    方红星, 施继坤, 张广宝. 产权性质、信息质量与公司债定价——来自中国资本市场的经验证据[J]. 金融研究, 2013(4):170-182.
    [25]
    史永东, 田渊博. 契约条款影响债券价格吗?——基于中国公司债市场的经验研究[J]. 金融研究, 2016(8): 143-158.
    SHI Yongdong, TIAN Yuanbo. Do bond covenants affect bond price? An empirical study based on corporate bond market of China[J]. Journal of Financial Research, 2016(8): 143-158.
    [26]
    任兆璋, 李鹏. 流动性风险对可违约债券信用利差期限结构的影响[J]. 系统管理学报, 2006, 15(3): 251-255.
    REN Zhaozhang, LI Peng. Impact of liquidity risk on the term structure of credit spreads[J]. Journal of Systems & Management, 2006, 15(3): 251-255.
    [27]
    何志刚，邵莹. 流动性风险对我国公司债券信用利差的影响——基于次贷危机背景的研究[J]. 会计与经济研究, 2012(1): 78-85.
    HE Zhigang, SHAO Ying. Influence of liquidity risk on Chinese corporate bonds yield spreads：A study based on the background of the subprime crisis[J]. Accounting and Economics Research, 2012(1): 78-85.
    [28]
    王苏生, 黄杰敏, 黄杰勇,等. 基于流动性风险的公司债券价差决定因素实证分析[J]. 管理工程学报, 2015, 29(3): 239-248.
    WANG Susheng, HUANG Jiemin, HUANG Jieyong, et al. Empirical analysis of liquidity risk premium of corporate bond spread[J]. Journal of Industrial Engineering and Engineering Management, 2015, 29(3): 239-248.
    [29]
    纪志宏, 曹媛媛. 信用风险溢价还是市场流动性溢价:基于中国信用债定价的实证研究[J]. 金融研究, 2017(2):1-10.
    [30]
    高强, 邹恒甫. 企业债与公司债二级市场定价比较研究[J]. 金融研究, 2015(1): 84-100.
    [31]
    ALLEN F, GALE D. Understanding Financial Crises[M]. Oxford: Oxford University Press, 2007: 343-345.
    [32]
    王茵田, 文志瑛. 股票市场和债券市场的流动性溢出效应研究[J]. 金融研究, 2010(3):155-166.
    [33]
    史永东, 丁伟, 袁绍锋. 市场互联、风险溢出与金融稳定——基于股票市场与债券市场溢出效应分析的视角[J]. 金融研究, 2013(3):170-180.
    [34]
    LELAND H E. Corporate debt value, bond covenants, and optimal capital structure[J]. Journal of Finance, 1994, 49(4): 1213-1252.
    [35]
    AMIHUD Y. Illiquidity and stock returns: Cross-section and time-series effects[J]. Journal of Financial Markets, 2002, 5(1): 31-56.
    [36]
    ROLL R. A simple implicit measure of the effective bid-ask spread in an efficient market[J]. Journal of Finance, 1984, 39(4): 1127-1139.
    [37]
    PASTOR L, STAMBAUGH R F. Liquidity risk and expected stock returns[J]. Journal of Political Economy, 2003, 111: 642-685.
    [38]
    CREMERS K J M, MAENHOUT P. Explaining the level of credit spreads: Option-implied jump risk premia in a firm value model[J]. Review of Financial Studies, 2008, 21(5): 2209-2242.
    [39]
    CARHART M M. On Persistence in mutual fund performance[J]. Journal of Finance, 1997, 52(1):57-82.
    [40]
    FAMA E F, FRENCH K R. Common risk factors in the returns on stocks and bonds[J]. Journal of Financial Economics, 1993, 33(1): 3-56.
    [41]
    吴良, 燕鑫, 杨宇程. 流动性危机与中国股灾之谜[J]. 统计研究, 2017, 34(12): 87-98.)
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    [1]
    BAO J, PAN J, WANG J. The illiquidity of corporate bonds[J]. Journal of Finance, 2012, 66(3): 911-946.
    [2]
    HE Z G, XIONG W. Rollover risk and credit risk[J]. Journal of Finance, 2012, 67(2): 391-430.
    [3]
    LELAND H E, TOFT K B. Optimal capital structure, endogenous bankruptcy, and the term structure of credit spreads[J]. Journal of Finance, 1996, 51(3): 987-1019.
    [4]
    HUANG H H, HUANG H Y, OXMAN J J. Stock liquidity and corporate bond yield spreads: Theory and evidence[J]. Journal of Financial Research, 2015, 38(1): 59-91.
    [5]
    陈学彬, 曾裕峰. 中美股票市场和债券市场联动效应的比较研究——基于尾部风险溢出的视角[J]. 经济管理, 2016, 38(7): 1-13.
    CHEN Xuebin, ZENG Yufeng. A comparative study of co-movement between stock and bond markets in China and the US: Based on the perspective of tail risk spillover effect[J]. Economic Management Journal, 2016, 38(7): 1-13.
    [6]
    BRUNNERMEIER M K, PEDERSEN L H. Market liquidity and funding liquidity[J]. Review of Financial Studies, 2009, 22(6): 2201-2238.
    [7]
    MERTON R C. On the pricing of corporate debt: The risk structure of interest rates[J]. Journal of Finance, 1974, 29(2): 449-470.
    [8]
    BLACK F, COX J C. Valuing corporate securities: Some effects of bond indenture provisions[J]. Journal of Finance, 1976, 31(2): 351-367.
    [9]
    LONGSTAFF F A, SCHWARTZ E. A simple approach to valuing risky fixed and floating rate debt[J]. Journal of Finance, 1995, 50(3):789-819.
    [10]
    JARROW R A, TURNBULL S M. Pricing options on derivative securities subject to credit risk[J]. Journal of Finance, 1995, 50(1): 53-85.
    [11]
    DUFFIE D, SINGLETON K J. Modeling term structure of defaultable bonds[J]. The Review of Financial Studies, 1999, 12(4): 687-720.
    [12]
    COLLIN-DUFRESNE P, GOLDSTEIN R S, MARTIN J S. The determinants of credit spread changes[J]. Journal of Finance, 2001, 56(6): 2177-2207.
    [13]
    CAMPBELL J Y, TAKSLER G B. Equity volatility and corporate bond yields[J]. Journal of Finance, 2003, 58(6): 2321-2349.
    [14]
    HUANG J Z, HUANG M. How much of the corporate-treasury yield spread is due to credit risk?[J]. Review of Asset Pricing Studies, 2012, 2(2): 153-202.
    [15]
    LONGSTAFF F A, MITHAL S, NEIS E. Corporate yield spreads: Default risk or liquidity? New evidence from the credit default swap market[J]. Journal of Finance, 2004, 60(5): 2213-2253.
    [16]
    CHEN L, LESMOND D A, WEI J. Corporate yield spreads and bond liquidity[J]. Journal of Finance, 2007, 62(1): 119-149.
    [17]
    CHORDIA T, SARKAR A, SUBRAHMANYAM A. An empirical analysis of stock and bond market liquidity[J]. Review of Financial Studies, 2003, 18(18): 85-129.
    [18]
    ODDERS-WHITE E R, READY M J. Credit ratings and stock liquidity[J]. Review of Financial Studies, 2005, 19(1): 119-157.
    [19]
    ACHARYA V V, SCHAEFER S, ZHANG Y. Liquidity risk and correlation risk: A clinical study of the General Motors and Ford downgrade of May 2005[J]. Quarterly Journal of Finance, 2015, 5: 1550006.
    [20]
    DAS S R, HANOUNA P. Hedging credit: Equity liquidity matters[J]. Journal of Financial Intermediation, 2009, 18(1): 112-123.
    [21]
    何平, 金梦. 信用评级在中国债券市场的影响力[J]. 金融研究, 2010(4):15-28.
    [22]
    赵静, 方兆本. 中国公司债信用利差决定因素——基于结构化理论的实证研究[J]. 经济管理, 2011, 33(11): 138-148.
    ZHAO Jing, FANG Zhaoben. The determinants of credit spread in Chinese corporate debt market: An empirical research based on structural models[J]. Economic Management Journal, 2011, 33(11): 138-148.
    [23]
    王安兴, 解文增, 余文龙. 中国公司债利差的构成及影响因素实证分析[J]. 管理科学学报, 2012, 15(5):32-41.
    WANG Anxing, XIE Wenzeng, YU Wenlong. Empirical research on China’s corporate bond yield spread[J]. Journal of Management Sciences in China, 2012, 15(5): 32-41.
    [24]
    方红星, 施继坤, 张广宝. 产权性质、信息质量与公司债定价——来自中国资本市场的经验证据[J]. 金融研究, 2013(4):170-182.
    [25]
    史永东, 田渊博. 契约条款影响债券价格吗?——基于中国公司债市场的经验研究[J]. 金融研究, 2016(8): 143-158.
    SHI Yongdong, TIAN Yuanbo. Do bond covenants affect bond price? An empirical study based on corporate bond market of China[J]. Journal of Financial Research, 2016(8): 143-158.
    [26]
    任兆璋, 李鹏. 流动性风险对可违约债券信用利差期限结构的影响[J]. 系统管理学报, 2006, 15(3): 251-255.
    REN Zhaozhang, LI Peng. Impact of liquidity risk on the term structure of credit spreads[J]. Journal of Systems & Management, 2006, 15(3): 251-255.
    [27]
    何志刚，邵莹. 流动性风险对我国公司债券信用利差的影响——基于次贷危机背景的研究[J]. 会计与经济研究, 2012(1): 78-85.
    HE Zhigang, SHAO Ying. Influence of liquidity risk on Chinese corporate bonds yield spreads：A study based on the background of the subprime crisis[J]. Accounting and Economics Research, 2012(1): 78-85.
    [28]
    王苏生, 黄杰敏, 黄杰勇,等. 基于流动性风险的公司债券价差决定因素实证分析[J]. 管理工程学报, 2015, 29(3): 239-248.
    WANG Susheng, HUANG Jiemin, HUANG Jieyong, et al. Empirical analysis of liquidity risk premium of corporate bond spread[J]. Journal of Industrial Engineering and Engineering Management, 2015, 29(3): 239-248.
    [29]
    纪志宏, 曹媛媛. 信用风险溢价还是市场流动性溢价:基于中国信用债定价的实证研究[J]. 金融研究, 2017(2):1-10.
    [30]
    高强, 邹恒甫. 企业债与公司债二级市场定价比较研究[J]. 金融研究, 2015(1): 84-100.
    [31]
    ALLEN F, GALE D. Understanding Financial Crises[M]. Oxford: Oxford University Press, 2007: 343-345.
    [32]
    王茵田, 文志瑛. 股票市场和债券市场的流动性溢出效应研究[J]. 金融研究, 2010(3):155-166.
    [33]
    史永东, 丁伟, 袁绍锋. 市场互联、风险溢出与金融稳定——基于股票市场与债券市场溢出效应分析的视角[J]. 金融研究, 2013(3):170-180.
    [34]
    LELAND H E. Corporate debt value, bond covenants, and optimal capital structure[J]. Journal of Finance, 1994, 49(4): 1213-1252.
    [35]
    AMIHUD Y. Illiquidity and stock returns: Cross-section and time-series effects[J]. Journal of Financial Markets, 2002, 5(1): 31-56.
    [36]
    ROLL R. A simple implicit measure of the effective bid-ask spread in an efficient market[J]. Journal of Finance, 1984, 39(4): 1127-1139.
    [37]
    PASTOR L, STAMBAUGH R F. Liquidity risk and expected stock returns[J]. Journal of Political Economy, 2003, 111: 642-685.
    [38]
    CREMERS K J M, MAENHOUT P. Explaining the level of credit spreads: Option-implied jump risk premia in a firm value model[J]. Review of Financial Studies, 2008, 21(5): 2209-2242.
    [39]
    CARHART M M. On Persistence in mutual fund performance[J]. Journal of Finance, 1997, 52(1):57-82.
    [40]
    FAMA E F, FRENCH K R. Common risk factors in the returns on stocks and bonds[J]. Journal of Financial Economics, 1993, 33(1): 3-56.
    [41]
    吴良, 燕鑫, 杨宇程. 流动性危机与中国股灾之谜[J]. 统计研究, 2017, 34(12): 87-98.)
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