Illiquidity linkages between individual stocks and corporate bonds

Abstract

This paper evaluates the cross comovements of illiquidity between stocks and corporate bonds issued by the same firm employing individual corporate bonds information from TRACE from July 2002 to December 2014. We analyze these relations in both a time series and a cross-sectional framework, employing different statistical approaches. Our results consistently confirm a positive linkage between the liquidity of the two assets, except for bonds in the AAA rating category. Therefore, flight to liquidity seems to arise only for very low-risk corporate bonds. Additionally, we find that the stock–bond liquidity relation strengthens with firm risk.