Market liquidity is of value to both investors and issuers of securities, and is therefore a crucial factor in asset pricing. For the important asset class of Eurobonds, significant feedback from liquidity to pricing is established, and it is shown that bid-ask spreads (a proxy for market liquidity) and yields are closely related to bond characteristics such as issue volume, time to maturity, the inclusion of collective action clauses, and the jurisdiction of issuance. Debt management offices can choose these characteristics in a way that has economically significant and persistent effects on both liquidity and pricing.
8: LogYieldDeterminants; Reduced Form Regressions
9. Log Yield Reduced Form Regressions; F Test Results, Full Sample
10. LogYieldDeterminants; Reduced Form Regressions Using only Explanatory Variables Known at Time of Issue
11. Log Yield Reduced Form Regressions Using only Explanatory Variables Known at Time of Issue; F Test Results
12. LogYieldDeterminants; Residuals from the Reduced Form Regression for LYLD_EMD Regressed on Residuals from the Reduced Form Regression for LBAS_EMD and Related Variables
statistics of around 0.85, even higher than those achieved in the regressions for the log bid-ask spreads ( Table 8 ). Many parameter estimates and groups of estimates are highly significant ( Table 9 ), and they are economically consistent with those obtained from the bid-ask spread regression.
LogYieldDeterminants; Reduced Form Regressions
First half of sample
Second half of sample