A new measure of corporate bond liquidity using survival analysis

Abstract

We define liquidity for corporate bonds as the expected waiting time to reduce a risk position. Our methodology addresses the fact that many bonds are liquidated quickly despite having 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 measure for all corporate bonds, independent of how often they trade and whatever transaction costs they incur.