Corporate bonds' liquidity in Brazilian market

Abstract

This study investigates empirically the liquidity proxies based on characteristics of Brazilian corporate bonds, as well as the interaction among liquidity measures. This approach was suggested by Houweling, Mentink and Vorst (2004), since traditional liquidity measures are difficult to be obtained in the corporate bonds market. Data on 135 public issues and their daily trading activities records on the market up to 18 months after issuance was gathered (Jan/1999 - Jun/2004). Parametric and Non-Parametric tests were performed to analyze the different liquidity measures, and the stepwise forward linear regression method was employed to select some of bond's characteristics. We found evidence that issue size and certain types of issuers, for instance, oil and energy sectors, are liquidity proxies; controlling for certain types of issuers, bonds with high issue size are more liquid; the relation between age and liquidity is not clear; the difference between maximum and minimum trading prices is not an appropriate liquidity measure.