The Relation Between Liquidity Risk and Credit Risk on the Treasury Yield and Corporate Bond Yield Spread

• Main Authors: Yu-Shuang Bai, 白玉霜
• Other Authors: Lan-Chih Ho
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/82133468829683572685

碩士 === 元智大學 === 管理研究所 === 90 === Abstract General speaking, yield spread on fixed-income securities is in terms of three major characters:(i) the default risk that the firm can’t pay or pays off less than promised pa- yment, i.e., credit risk ;(ii) bond price is sensitive to interest rate change, i.e., interest rate risk ; and (iii) the risk that the holder will be unable to sell the instrument, i.e., li- quidity risk. Therefore, we are interesting in the relation between liquidity and credit risk on yield spread of treasury and corporate bond, after controlling interest rate risk. The structure of the paper includes two major segments. In first portion, we use or- dinary least squares (OLS) method to analysis zero-coupon bonds in initial public of- fering market (IPO). In second portion, we employ linear structural relationships (LISREL) model to examine speculative-grade debt in secondary market (SEC). Our empirical results of OLS and LISREL methods are consistent with previous literature liquidity risk and credit risk should be positively correlated with yield spread of trea- sury and corporate bond. Most important of all, we find positive correlation between liquidity risk and credit risk. The effect of liquidity risk on yield spread is larger than the effect of credit risk on yield spread. These meaningful finds could make a contr- ibution to further improvement on risk management of fixed-income securities.