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Abstract
This article examines the relationship, commonly assumed by the literature, between credit rating and liquidity. Analyzing sixteen proxies of (il)liquidity encompassed in five dimensions of liquidity from transaction data, the authors observe that credit ratings can be grouped into four blocks based on their liquidity when working with bond-level data. The blocks are AAA/AA and A/BBB for investment-grade bonds, and BB/B and “CCC or lower” for speculative-grade bonds. However, when working with rating-level data, significant differences in liquidity appear between all rating categories. These liquidity differences are not homogeneous when a distinction is made between dimensions of liquidity.
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