This study analyses how liquidity risk affects bonds’ yield spreads after controlling
for credit risk, bond-specific characteristics and macroeconomic variables. Using
two liquidity estimates, LOT liquidity and the bid-ask spread, we find that, in particular, the LOT liquidity measure has explanatory power for the yield spread of
green bonds. Overall, however, the impact of LOT decreases over time, implying
that, nowadays liquidity risk is negligible for green bonds.
Febi, W., Schäfer, D., Stephan, A., & Sun, C. (2018). Liquidity risk and yield spread of green bonds. Ratio Working Paper No. 305. Stockholm: Ratio.