Corporate Bond Inventories and Liquidity Risk Pricing

Sammanfattning: This paper studies the pricing of liquidity risk in the cross section of corporate bonds for the period of October 2004 to December 2020 following the method presented by Lin et al. (2011). Furthermore, it examines the relationship between liquidity pricing and inventory cycles. No significant results for general pricing of liquidity risk are found for the full sample period, however significant pricing is found after the financial crisis. Market-wide liquidity is priced to a lesser extent as peak inventory grows. We find no significant relationship between a proxy for individual liquidity and inventory cycles.