Liquidity dimensions in the U.S. 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 individual 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.