An Empirical Model for Corporate Bond Liquidity as a Function of Bond Properties

Abstract

We define liquidity for corporate bonds as the time it takes to liquidate a given position. Our methodology addresses the fact that many bonds are liquidated quickly despite few trades in the recent past. Building on research from the housing market, we apply survival analysis to bond holding times. We generalize across bond properties and market conditions to arrive at a liquidity model for all corporate bonds; regardless of how often they trade.