What the study found
The study found that liquidity shocks in downgraded corporate bonds spill over to certain peer bonds. These affected peers include bonds from firms with high fundamental volatility, a small number of economically related peers, and bonds with stronger learning signals, measured by a high 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, meaning 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 using regulation-induced selling pressure that followed rating downgrades from investment grade to high yield. The study focused on how liquidity shocks in downgraded bonds were associated with spillovers to different types of peer bonds.
What worked and what didn't
The empirical evidence showed spillovers to peer bonds with high fundamental volatility, to a small number of economically related peer bonds, and to peer bonds with a higher degree of learning. The abstract does not report any results that did not support these patterns.
What to keep in mind
The available summary does not describe additional limitations, and the findings are limited to the setting studied: corporate bonds affected by rating downgrades from investment grade to high yield.
Key points
- Liquidity shocks from downgraded corporate bonds spilled over to peer bonds.
- Spillovers were documented for peers from firms with high fundamental volatility.
- A small number of economically related peer bonds were also affected.
- Peer bonds with a higher degree of learning showed spillover effects.
- The findings support the cross-asset learning hypothesis.
Disclosure
- Research title:
- Liquidity shocks spill over to related corporate bond peers
- Authors:
- Jiyoon Choi
- Institutions:
- Seoul National University, New Generation University College
- Publication date:
- 2026-04-06
- OpenAlex record:
- View
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