What the study found
The study found that liquidity shocks in downgraded corporate bonds can spill over to other bonds in the market. The spillovers were seen especially in peer bonds issued by firms with high fundamental volatility, a small number of economically related peers, and peers with a higher degree of learning, meaning a stronger correlation between trading volume and return volatility.
Why the authors say this matters
The authors conclude that the evidence supports the cross-asset learning hypothesis. They suggest that liquidity contagion from one asset to others arises through information learning across assets.
What the researchers tested
The researcher examined liquidity spillover in the corporate bond market. The study used regulation-induced selling pressure that followed rating downgrades from investment grade to high yield as the setting for the analysis.
What worked and what didn't
The empirical evidence showed spillovers from downgraded bonds to certain peer bonds. The study reports stronger spillovers for peers with high fundamental volatility, for a small number of economically related peers, and for peers with higher learning as indicated by the correlation between trading volume and return volatility.
What to keep in mind
The abstract does not describe specific limitations. The summary is limited to the corporate bond market setting and to spillovers associated with rating downgrades from investment grade to high yield.
Key points
- Liquidity shocks in downgraded corporate bonds spilled over to some peer bonds.
- Spillovers were stronger for peers issued by firms with high fundamental volatility.
- Spillovers also appeared among a small number of economically related peer bonds.
- Peer bonds with a higher degree of learning showed stronger spillover patterns.
- The findings support the cross-asset learning hypothesis.
Disclosure
- Research title:
- Liquidity shocks spill over to related corporate bond peers
- Authors:
- Jiyoon Choi
- Institutions:
- New Generation University College, Seoul National University
- Publication date:
- 2026-04-06
- DOI:
- 10.1111/ajfs.70046
- OpenAlex record:
- View
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