scholarly journals Secondary Market Liquidity and Primary Market Pricing of Corporate Bonds

2019 ◽  
Vol 12 (2) ◽  
pp. 86 ◽  
Author(s):  
Michael A. Goldstein ◽  
Edith S. Hotchkiss ◽  
David J. Pedersen
Keyword(s):  
Asset Prices ◽  
Cost Of Capital ◽  
Secondary Market ◽  
Market Liquidity ◽  
Corporate Bond ◽  
Yield Spread ◽  
Market Pricing ◽  
Yield Spreads ◽  
Ex Ante ◽  
The Impact

This paper studies the link between secondary market liquidity for a corporate bond and the bond’s yield spread at issuance. Using ex-ante measures of expected liquidity at the time of issuance, based on the characteristics of the underwriting syndicate, we find an economically large impact of liquidity on yield spreads. We estimate that a 10% increase in expected liquidity implies a decrease in the yield spread at issuance of between 8% and 14%. Our results suggest that liquidity has an important effect on firms’ cost of capital, and they contribute to the literature which examines the impact of liquidity on asset prices.

scholarly journals The Empirical Study on Market Liquidity and Determinants of Sukuk in Malaysia

2018 ◽  
Vol 2 (3) ◽  
pp. 4-15
Author(s):  
Norshafizah Hanafi ◽  
Amirul Hamiza Abdul Hamid ◽  
Jasmani Mohd Yunus
Keyword(s):  
Secondary Data ◽  
Secondary Market ◽  
Market Liquidity ◽  
Yield Spread ◽  
Price Determination ◽  
Determination Process ◽  
Asset Backed Securities ◽  
The Right ◽  
The Impact ◽  
The Relationship

The purpose of this study is to examine the relationship between market liquidity and the determinants of Sukuk in Malaysia’s perspective. This study is also to determine whether the Sukuk market is also reacting as similar to the bond market regarding market liquidity. A sample of 933 issued Sukuk in Malaysia is collected from secondary data of Bond Pricing of Agency Malaysia (BPAM) and Bond Info hub of Bank Negara Malaysia from the period of 2005 to 2015. The sample of issued Sukuk is based on Malaysian Ringgit denominated currency and these Sukuk are actively traded in the secondary market of Malaysia. The sample comprises five (5) sectors inclusive government, quasi-government, finance; Asset-Backed Securities (ABS) and corporates. Market Microstructure Theory is using on the impact of numerous market frictions in the market structure and individual behaviour during the price determination process in this study. The empirical results of this study show that age and maturity have a positive relationship with Sukuk market liquidity and they are significantly correlated. The findings of this study could assist investors in the making decision by choosing the right type of Sukuk structure and by utilising the suitable Sukuk determinants at the right time. From the analysis, the researcher concludes that investors prefer to hold their securities until meeting its maturity rather than traded it in the secondary market. Further research should be done by incorporating other liquidity factors such as the liquidity risk, yield spread and price in order to have more input to the study on liquidity since the Sukuk market is increasing in demand and becomes more sophisticated as the financial market is moving towards digitalisation and electrification.

A Comparative Analysis of Drivers of Secondary Market Liquidity in Financial Markets for Investment Analysis

2019 ◽  
pp. 340-366
Author(s):  
Hakki Karatas ◽  
Nildag Basak Ceylan ◽  
Ayhan Kapusuzoglu
Keyword(s):  
Comparative Analysis ◽  
Stock Markets ◽  
Global Financial Crisis ◽  
Negative Impact ◽  
Bond Market ◽  
Secondary Market ◽  
Market Liquidity ◽  
Investment Analysis ◽  
Secondary Bond ◽  
The Impact

The purpose of this chapter is to examine the drivers of secondary bond market and stock market liquidity for investment analysis after global financial crisis in Turkey. The literature in Turkey mainly focuses only on the volatility of return for driving liquidity in both bond and stock markets. However, it is argued that other types of volatilities including domestic and international volatilities have also a deteriorating impact on secondary market liquidity in Turkey. In this context, it is empirically tested whether the volatility and/or uncertainty that stem from the FED and ECB policies within the last 10 years had a negative impact on liquidity both in government bond and stock markets. Moreover, the impact of non-residents in bond and stock markets on secondary market liquidity is examined by including their holdings in stock and bond market.

Does Stock Liquidity Affect Corporate Debt Maturity Structure?

2020 ◽  
pp. 2150005
Author(s):  
Joseph M. Marks ◽  
Chenguang Shang
Keyword(s):  
Stock Market ◽  
Debt Maturity ◽  
Market Liquidity ◽  
Stock Liquidity ◽  
Yield Spreads ◽  
Debt Maturity Structure ◽  
Bond Yield ◽  
Maturity Structure ◽  
Stock Market Liquidity ◽  
The Impact

We show an inverse relation between the use of short-term debt and stock market liquidity. This finding is robust to a battery of control variables, alternative measures of the key variables, and various identification strategies. A difference-in-difference (DiD) approach suggests that the relation between debt maturity structure and stock liquidity may be causal. The impact of stock liquidity on debt maturity is stronger in the presence of large institutional holdings and when borrowers are subject to greater refinancing risk. We also provide evidence that firms with liquid stock tend to issue longer-term bonds and enjoy lower bond yield spreads. Overall, our results support the view that the governance function of stock market liquidity reduces the necessity of debt market monitoring, which allows firms to shift toward longer-term debt to avoid the costs and risk of frequent refinancing.

scholarly journals Information and Heterogeneous Beliefs: Cost of Capital, Trading Volume, and Investor Welfare

2013 ◽  
Vol 89 (1) ◽  
pp. 209-242 ◽  
Author(s):  
Peter O. Christensen ◽  
Zhenjiang Qin
Keyword(s):  
Information System ◽  
Risk Premium ◽  
Trading Volume ◽  
Cost Of Capital ◽  
Public Information ◽  
Exchange Economy ◽  
Substantial Impact ◽  
Certainty Equivalents ◽  
Ex Ante ◽  
The Impact

ABSTRACTIn an incomplete market with heterogeneous prior beliefs, we show that public information can have a substantial impact on the ex ante cost of capital, trading volume, and investor welfare. The Pareto efficient public information system is the system enjoying the maximum ex ante cost of capital and the maximum expected abnormal trading volume. Imperfect public information increases the gains-to-trade based on heterogeneously updated posterior beliefs. In an exchange economy, this leads to higher growth in the investors' certainty equivalents and, thus, a higher equilibrium interest rate, whereas the ex ante risk premium is unaffected by the informativeness of the public information system. Similar results are obtained in a production economy, but the impact on the ex ante cost of capital is dampened compared to the exchange economy due to welfare-improving reductions in real investments to smooth the investors' certainty equivalents over time.

scholarly journals Capital market effects of adoption of IFRS

2021 ◽  
Author(s):  
◽  
Solomon Opare
Keyword(s):  
Financial Reporting ◽  
Capital Market ◽  
Cost Of Capital ◽  
Meta Analysis ◽  
Empirical Studies ◽  
Market Liquidity ◽  
Ifrs Adoption ◽  
Voluntary Adoption ◽  
The Impact ◽  
Financial Reporting Comparability

<p>This thesis examines the impact of adoption of IFRS (International Financial Reporting Standards) on two aspects of the operation of capital markets. Firstly, the impact of adoption of IFRS on financial reporting comparability, market liquidity, and cost of capital. Secondly, the impact of adoption of IFRS on seasoned equity offering (SEO) underperformance.  To examine the impact of adoption of IFRS on financial reporting comparability, market liquidity, and cost of capital, the study used meta-analysis of empirical studies published since 2000. Meta-analysis provides an objective view of the empirical results, in contrast to narrative reviews, which offer subjective conclusions. From meta-analysis of 55 empirical studies with 1,259 effect sizes, the study finds that IFRS adoption has increased financial reporting comparability, market liquidity, and reduced cost of equity. For cost of debt, a decrease is observed only for voluntary adoption. The meta-regression analysis shows how the results differ across mandatory and voluntary adoption of IFRS and that the measurement choices, type of control variables, study design, and strength of empirical results explain the variation in the observed effect of adoption of IFRS.  To examine the impact of adoption of IFRS on SEO underperformance the study analyses a large sample of SEOs from 51 countries over the period 1992-2017. Given that the empirical literature on SEOs has established that information asymmetry contributes to SEO underperformance, it is important to assess whether adoption of IFRS has reduced the uncertainties surrounding SEOs and, thus, subsequent underperformance. The study employs a control sample of non-IFRS adoption countries and applies a difference-in-difference (DiD) design to test for the incremental change for IFRS adoption countries over non-IFRS adoption countries. The study finds that SEO underperformance reduces for IFRS adopters relative to non-IFRS adopters in the post-adoption period. The reduction in SEO underperformance is influenced by increased disclosure, increased comparability, and number of accounting changes. The study also finds that the impact of adoption of IFRS on SEO underperformance exists only for firms in countries with strong enforcement, and is conditional on the implementation credibility of countries. The findings are robust to the application of a different measure of SEO underperformance.  Overall, the study suggests that IFRS has had a positive impact on capital markets. However, increased disclosure, comparability, and credible implementation play important roles in realising the benefits of adoption of IFRS. Thus, policymakers of weak enforcement countries are encouraged to strengthen their institutional environment in order to reap the benefits that adoption of IFRS can provide to their capital market.</p>

scholarly journals Capital market effects of adoption of IFRS

2021 ◽  
Author(s):  
◽  
Solomon Opare
Keyword(s):  
Financial Reporting ◽  
Capital Market ◽  
Cost Of Capital ◽  
Meta Analysis ◽  
Empirical Studies ◽  
Market Liquidity ◽  
Ifrs Adoption ◽  
Voluntary Adoption ◽  
The Impact ◽  
Financial Reporting Comparability

<p>This thesis examines the impact of adoption of IFRS (International Financial Reporting Standards) on two aspects of the operation of capital markets. Firstly, the impact of adoption of IFRS on financial reporting comparability, market liquidity, and cost of capital. Secondly, the impact of adoption of IFRS on seasoned equity offering (SEO) underperformance.  To examine the impact of adoption of IFRS on financial reporting comparability, market liquidity, and cost of capital, the study used meta-analysis of empirical studies published since 2000. Meta-analysis provides an objective view of the empirical results, in contrast to narrative reviews, which offer subjective conclusions. From meta-analysis of 55 empirical studies with 1,259 effect sizes, the study finds that IFRS adoption has increased financial reporting comparability, market liquidity, and reduced cost of equity. For cost of debt, a decrease is observed only for voluntary adoption. The meta-regression analysis shows how the results differ across mandatory and voluntary adoption of IFRS and that the measurement choices, type of control variables, study design, and strength of empirical results explain the variation in the observed effect of adoption of IFRS.  To examine the impact of adoption of IFRS on SEO underperformance the study analyses a large sample of SEOs from 51 countries over the period 1992-2017. Given that the empirical literature on SEOs has established that information asymmetry contributes to SEO underperformance, it is important to assess whether adoption of IFRS has reduced the uncertainties surrounding SEOs and, thus, subsequent underperformance. The study employs a control sample of non-IFRS adoption countries and applies a difference-in-difference (DiD) design to test for the incremental change for IFRS adoption countries over non-IFRS adoption countries. The study finds that SEO underperformance reduces for IFRS adopters relative to non-IFRS adopters in the post-adoption period. The reduction in SEO underperformance is influenced by increased disclosure, increased comparability, and number of accounting changes. The study also finds that the impact of adoption of IFRS on SEO underperformance exists only for firms in countries with strong enforcement, and is conditional on the implementation credibility of countries. The findings are robust to the application of a different measure of SEO underperformance.  Overall, the study suggests that IFRS has had a positive impact on capital markets. However, increased disclosure, comparability, and credible implementation play important roles in realising the benefits of adoption of IFRS. Thus, policymakers of weak enforcement countries are encouraged to strengthen their institutional environment in order to reap the benefits that adoption of IFRS can provide to their capital market.</p>

Block Ownership, Trading Activity, and Market Liquidity

2009 ◽  
Vol 44 (6) ◽  
pp. 1403-1426 ◽  
Author(s):  
Paul Brockman ◽  
Dennis Y. Chung ◽  
Xuemin (Sterling) Yan
Keyword(s):  
Ownership Structure ◽  
Negative Impact ◽  
Informed Trading ◽  
Secondary Market ◽  
Market Liquidity ◽  
Inverse Relation ◽  
Trading Activity ◽  
Relative Lack ◽  
Friction Effect ◽  
The Impact

AbstractWe examine the impact of block ownership on the firm’s trading activity and secondary-market liquidity. Our empirical results show that block ownership takes potential trading activity off the table relative to a diffuse ownership structure and impairs the firm’s market liquidity. These adverse liquidity effects disappear, however, once we control for trading activity. Our findings suggest that block ownership is detrimental to the firm’s market liquidity because of its adverse impact on trading activity—a real friction effect. After controlling for this real friction effect, we find little evidence that block ownership has a negative impact on informational friction. Our results suggest that the relative lack of trading, and not the threat of informed trading, explains the inverse relation between block ownership and market liquidity.

Sign in / Sign up

Export Citation Format

Share Document