Persistent Link:
http://hdl.handle.net/10150/194948
Title:
Two Essays on the Corporate Bond Market
Author:
Theocharides, George
Issue Date:
2006
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This dissertation consists of two papers. The first paper examines the propagation of firm-specific shocks as well as market-wide shocks between 1995-2003 using Treasury and corporate bond market data. It then tests the implications of previously proposed models of contagion. I find little support for the industry and counterparty structure hypothesis, suggesting that fundamentals do not generate contagion. Consistent with the information transmission, rebalancing, and liquidity-shock hypotheses, I find evidence of flight to quality during the event periods. However, in contrast to the prediction of the liquidity-shock channel, the corporate bond market, on average, seems to be more liquid during event periods (evidenced by higher trading volume, trading frequency, and mean bond age). Furthermore, there are no significant changes in the trading of assets with the low transaction costs, which is contrary to the rebalancing theory. These findings are more in favor of the correlated information channel as a means of inducing contagion.The second paper examines the effect of liquidity on corporate bond prices using the newly formed TRACE data set. In the spirit of Acharya and Pedersen's (2005) liquidity-adjusted capital asset pricing model (LCAPM), I examine the impact of multiple sources of risk on corporate bond prices. The results do not lend strong support for the existence of liquidity risk in the corporate bond market or for the LCAPM, especially when liquidity is captured using the trading frequency, trading volume, and turnover. Contrary to the predictions of the LCAPM, more illiquid portfolios do not have higher values for the three liquidity betas; betas that capture the commonality in liquidity with the market, the sensitivity in returns with the market-wide liquidity, and the liquidity sensitivity with the market returns. Furthermore, after running cross-sectional regressions I do not find strong evidence either for the validity of the model or that liquidity risk does matter for the corporate bond prices.
Type:
text; Electronic Dissertation
Keywords:
bond market; contagion; liquidity; fixed income
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Management; Graduate College
Degree Grantor:
University of Arizona
Advisor:
Helwege, Jean
Committee Chair:
Helwege, Jean

Full metadata record

DC FieldValue Language
dc.language.isoenen_US
dc.titleTwo Essays on the Corporate Bond Marketen_US
dc.creatorTheocharides, Georgeen_US
dc.contributor.authorTheocharides, Georgeen_US
dc.date.issued2006en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis dissertation consists of two papers. The first paper examines the propagation of firm-specific shocks as well as market-wide shocks between 1995-2003 using Treasury and corporate bond market data. It then tests the implications of previously proposed models of contagion. I find little support for the industry and counterparty structure hypothesis, suggesting that fundamentals do not generate contagion. Consistent with the information transmission, rebalancing, and liquidity-shock hypotheses, I find evidence of flight to quality during the event periods. However, in contrast to the prediction of the liquidity-shock channel, the corporate bond market, on average, seems to be more liquid during event periods (evidenced by higher trading volume, trading frequency, and mean bond age). Furthermore, there are no significant changes in the trading of assets with the low transaction costs, which is contrary to the rebalancing theory. These findings are more in favor of the correlated information channel as a means of inducing contagion.The second paper examines the effect of liquidity on corporate bond prices using the newly formed TRACE data set. In the spirit of Acharya and Pedersen's (2005) liquidity-adjusted capital asset pricing model (LCAPM), I examine the impact of multiple sources of risk on corporate bond prices. The results do not lend strong support for the existence of liquidity risk in the corporate bond market or for the LCAPM, especially when liquidity is captured using the trading frequency, trading volume, and turnover. Contrary to the predictions of the LCAPM, more illiquid portfolios do not have higher values for the three liquidity betas; betas that capture the commonality in liquidity with the market, the sensitivity in returns with the market-wide liquidity, and the liquidity sensitivity with the market returns. Furthermore, after running cross-sectional regressions I do not find strong evidence either for the validity of the model or that liquidity risk does matter for the corporate bond prices.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectbond marketen_US
dc.subjectcontagionen_US
dc.subjectliquidityen_US
dc.subjectfixed incomeen_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineManagementen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorHelwege, Jeanen_US
dc.contributor.chairHelwege, Jeanen_US
dc.contributor.committeememberDyl, Edward A.en_US
dc.contributor.committeememberMaxwell, Williamen_US
dc.contributor.committeememberFlores-Lagunes, Alfonsoen_US
dc.contributor.committeememberAradhyula, Satheesh V.en_US
dc.identifier.proquest1734en_US
dc.identifier.oclc659747486en_US
All Items in UA Campus Repository are protected by copyright, with all rights reserved, unless otherwise indicated.