Abstract
The authors estimate the market liquidity of bonds by means of a factor model. They build scores for an extended set of issues by associating reported bid-ask spreads directly to intrinsic bond characteristics. The scores are tested out-of-sample on a large database of executed trades. The scores can be used as a bond selection criterion in the portfolio construction processes, and can be instrumental for proactively managing the liquidity position of a fixed-income fund.
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Bond Liquidity Scores
