Liquidity, Maturity, and the Yields on U.S. Treasury Securities

  • Author(s): YAKOV AMIHUD, HAIM MENDELSON
  • Published: Apr 30, 2012
  • Pages: 1411-1425
  • DOI: 10.1111/j.1540-6261.1991.tb04623.x

ABSTRACT

The effects of asset liquidity on expected returns for assets with infinite maturities (stocks) are examined for bonds (Treasury notes and bills with matched maturities of less than 6 months). The yield to maturity is higher on notes, which have lower liquidity. The yield differential between notes and bills is a decreasing and convex function of the time to maturity. The results provide a robust confirmation of the liquidity effect in asset pricing.

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