Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130230
Authors: 
Schuster, Philipp
Trapp, Monika
Uhrig-Homburg, Marliese
Year of Publication: 
2016
Series/Report no.: 
CFR Working Paper 13-05 [rev.2]
Abstract: 
We analyze the impact of market frictions on trading volume and liquidity premia of finite maturity assets when investors differ in their trading needs. Our equilibrium model generates a clientele effect (frequently trading investors only hold short-term assets) and predicts i) a hump-shaped relation between trading volume and maturity, ii) lower trading volumes of older compared to younger assets, iii) an increasing liquidity term structure from ask prices, iv) a decreasing or U-shaped liquidity term structure from bid prices, and v) spill-overs of liquidity from short-term to long-term maturities. Empirical tests for U.S. corporate bonds support our theoretical predictions.
Subjects: 
bond liquidity
term structure of liquidity premia
heterogeneous agents
aging effect
trading volume
equilibrium
JEL: 
G11
G12
Document Type: 
Working Paper

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