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Are Liquidity and Information Risks Priced in the Treasury Bond Market?
Author(s) -
LI HAITAO,
WANG JUNBO,
WU CHUNCHI,
HE YAN
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01439.x
Subject(s) - market liquidity , treasury , liquidity risk , bond , business , liquidity crisis , financial economics , liquidity premium , actuarial science , economics , monetary economics , finance , geography , archaeology
We provide a comprehensive empirical analysis of the effects of liquidity and information risks on expected returns of Treasury bonds. We focus on the systematic liquidity risk of Pastor and Stambaugh as opposed to the traditional microstructure‐based measures of liquidity. Information risk is measured by the probability of information‐based trading (PIN). We document a strong positive relation between expected Treasury returns and liquidity and information risks, controlling for the effects of other systematic risk factors and bond characteristics. This relation is robust to many empirical specifications and a wide variety of traditional liquidity and informed trading proxies.