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Three Essays on Corporate Bond Market Liquidity

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The three essays study the US corporate bond market with special attentionto bond liquidity. All essays are empirical studies which rely heavily onthe availability of transactions data. Earlier studies had to use quoted bondprices for empirical studies, but with the introduction of the TRACE systemand with the following dissemination of transaction prices the data qualityon corporate bonds has improved immensely. In the years after 2000 arange of studies assessed the performance of structural credit risk models andfound that they were not able to fully explain the size of the average creditspread for corporate bonds. Huang and Huang (2003) suggested (amongothers) that the remaining non-default-component of the credit spread wasan illiquidity premium. Using transaction data this thesis studies the impactof illiquidity and trading frictions on corporate bonds.

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Jens Dick-Nielsen

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