Debt, Information, and Illiquidity
We analyze the empirical determinants of liquidity in debt markets in light of predictions stemming from debt-based information theories. We conduct a battery of tests confirming predictions of asymmetric information models of bond liquidity, including those that predict a``hockey-stick" relati...
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| Veröffentlicht in: | NBER Working Paper Series 2018-09, p.25054 |
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| creator | Benmelech, Efraim Bergman, Nittai K |
| description | We analyze the empirical determinants of liquidity in debt markets in light of predictions stemming from debt-based information theories. We conduct a battery of tests confirming predictions of asymmetric information models of bond liquidity, including those that predict a``hockey-stick" relation between bond liquidity and underlying fundamental value. When debt is deep in the money, it becomes informationally insensitive and more liquid. In contrast, when firm value deteriorates towards the left tail, the value of debt becomes informationally sensitive and less liquid. We alleviate endogeneity concerns using exogenous variation in firm value that is plausibly not driven by bond liquidity. Our results shed new empirical light on the determination of liquidity in debt markets. |
| doi_str_mv | 10.3386/w25054 |
| format | Article |
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| identifier | ISSN: 0898-2937 |
| ispartof | NBER Working Paper Series, 2018-09, p.25054 |
| issn | 0898-2937 |
| language | eng |
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| source | National Bureau of Economic Research Publications; Alma/SFX Local Collection |
| subjects | Asset Pricing Corporate Finance Default Economic Fluctuations and Growth Economic models Economics Information theory Monetary Economics |
| title | Debt, Information, and Illiquidity |
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