earticle

영어

We show that illiquid bonds can become more expensive than liquid bonds with almost identical cash flows during market distress times. The economic mechanism behind the results is search frictions. When the search friction is high, marginal traders prefer to sell liquid bonds at lower prices than illiquid bonds because failure to find buyers can be costly. We empirically identify the reversed liquidity premium through within-issuer-date matching of bonds and the regression discontinuity design based on newly issued corporate bonds. In both the identification settings, we find that the yield differentials between illiquid and liquid bonds become negative during the market distress times. Using insurance company trades, we document transactionlevel evidence for the reversed liquidity premium for same-issuer bonds on the same day that are traded by the same insurer.