Information and Liquidity in the Market for Foreign Currency Denominated Sovereign Bonds
Abstract: This note finds a negative, non-linear relationship between bond yield and liquidity using data on Portuguese, Irish, Italian, Greek, and Spanish (PIIGS) sovereign bonds from 2010-2015. This relationship is predicted by the asymmetric information model of bond liquidity by Holmstrom (2015) and Gorton (2017).
Part of Series: FEDS Notes
Publication Date: 2020-12-28