PT  - JOURNAL ARTICLE
AU  - Stephen Rush
TI  - The Bond Coupon’s Impact on Liquidity
AID  - 10.3905/jfi.2018.27.4.034
DP  - 2018 Mar 31
TA  - The Journal of Fixed Income
PG  - 34--39
VI  - 27
IP  - 4
4099  - https://pm-research.com/content/27/4/34.short
4100  - https://pm-research.com/content/27/4/34.full
AB  - Corporate bond investors are compensated for liquidity and counterparty risk in the yield received in excess of the credit premium and risk-free rate. This article shows that the liquidity premium as a hedge against uncertain future states is determined by the ratio of excess coupon payments after paying for credit protection to the capital gain realized after hedging interest rate risk. The liquidity premium increases with the time that investors must wait for compensation. The results suggest that the way in which investors receive compensation for liquidity risk is a more significant determinant of the liquidity premium than turnover.TOPICS: Fixed income and structured finance, analysis of individual factors/risk premia