Liquidity or Credit Risk? The Determinants of Very Short-Term Corporate Yield Spreads

@inproceedings{Covitz2007LiquidityOC,
  title={Liquidity or Credit Risk? The Determinants of Very Short-Term Corporate Yield Spreads},
  author={Dan Covitz and Chris Downing},
  year={2007}
}
Employing a comprehensive database on transactions of commercial paper issued by domestic U.S. nonfinancial corporations, we study the determinants of very short-term corporate yield spreads. We find that liquidity plays a role in the determination of spreads but, somewhat surprisingly, credit quality is the more important determinant of spreads, even at horizons of less than 1 month. These results are robust across a variety of proxies for liquidity and credit risk, and have important… CONTINUE READING

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