Analysis of Liquidity Influence on Bond Yields in Developing Countries

This paper considers the impact of liquidity on corporate bond yield. The work uses data on Russian corporate bonds of the non-financial sector for the period from 2016 to 2019 that was collected from Eikon Refinitiv and C-bonds terminals. The paper considers a wide range of liquidity indicators that include turnover, trading volume, number of transactions, bid-ask spread relative and absolute, Amihud measure. Liquidity indicators are ranked by significance based on testing regression models, and their impact on corporate bond yield is assessed. As part of the study, an original integrated liquidity indicator was developed using the principal component method and its significance and explanatory power were compared with other liquidity indicators. As a result of the analysis of panel data, conclusions were drawn about the negative impact of most liquidity indicators on profitability. The most significant indicators of liquidity were the relative bid-ask spread and the Amihud measure. The integrated indicator of liquidity, that was developed using the principal component method, turned out to be significant in explaining profitability. Moreover, it had the greatest explanatory power among the considered liquidity indicators.