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Primary Article

Bid-Ask Spread, Volatility, and Volume in the Corporate Bond Market

Madhu Kalimipalli and Arthur D Warga
The Journal of Fixed Income Spring 2002, 11 (4) 31-42; DOI: https://doi.org/10.3905/jfi.2002.319310
Madhu Kalimipalli
An assistant professor of finance at the School of Business and Economics at Wilfrid Laurier University in Waterloo, Ontario.
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  • For correspondence: mkalimip@wlu.ca
Arthur D Warga
Dean and Judge James A. Elkins Endowed Chair of Banking and Finance at the University of Houston's Bauer College of Business in Texas.
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  • For correspondence: warga@uh.edu
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Abstract

This article examines the time series relationship between the bid-ask spread and volatility and volume of the ten most actively traded bonds on the NYSE's Automated Bond System (ABS). A significant percentage of the trading in these bonds is carried out on the ABS, but retail-sized transactions and time-clustering mandate an approach that accommodates irregularly spaced quotes. Latent volatility for each bond is extracted using an autoregressive conditional duration model that provides input into an ordered probit model for observed spreads. For the most part, the authors find a significant positive relationship between latent volatility and observed spread, and a negative relationship between a trading volume

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The Journal of Fixed Income
Vol. 11, Issue 4
Spring 2002
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Bid-Ask Spread, Volatility, and Volume in the Corporate Bond Market
Madhu Kalimipalli, Arthur D Warga
The Journal of Fixed Income Mar 2002, 11 (4) 31-42; DOI: 10.3905/jfi.2002.319310

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Bid-Ask Spread, Volatility, and Volume in the Corporate Bond Market
Madhu Kalimipalli, Arthur D Warga
The Journal of Fixed Income Mar 2002, 11 (4) 31-42; DOI: 10.3905/jfi.2002.319310
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