Download or read book Stock Liquidity and Corporate Bond Yield Spreads written by Henry Hongren Huang and published by . This book was released on 2016 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of individual stock liquidity on corporate bond yield spreads in the U.S. market. By extending the endogenous-default model to include stock liquidity in the calculation of the bond value we show that a drop in stock liquidity will increase the firm's credit risk by increasing the firm's default boundary, leading to an increase of the credit spread. Our model is consistent with the sharp increase of credit risk premiums and the “yield spread spike” phenomenon in corporate bond markets during the financial crisis. We present empirical evidence supportive of our model.