Liquidity dimensions in the US corporate bond market

We examine the role of five liquidity dimensions in the U.S. corporate bond market from a broad set of liquidity proxies. Based on the observed different level of liquidity shown by investment-grade and high-yield bonds, we analyze the ability of several liquidity proxies and dimensions to classify bonds within these two main credit rating classes. Our findings show that, at the in-dividual level, all tightness-based liquidity metrics outperform the other measures. In this way, a few proxies measuring transaction costs can help detect high-yield bonds whose liquidity behaves similarly to that of investment-grade bonds. At the dimension level, we find that the theoretical separation into liquidity dimensions is empirically corroborated, but the joint consideration of all of them only brings a slight improvement in results.