Nonlinear structural estimation of corporate bond liquidity

We estimate the term structure of corporate bond liquidity premiums using a dual estimation technique. Our estimates reveal that the term structures of the liquidity premiums were positively sloped and concave for each category of creditworthiness and in three economic epochs. As the macroeconomy transitioned from a pre-crisis to a crisis period, liquidity premiums elevated across time to maturity for both investment grade and speculative grade bonds. With the migration of the financial system from stress to relative calm, the premiums on both grades of debt declined for all maturities.