Estimating Liquidity Premia in the Spanish Government Securities Market

This paper investigates the presence of liquidity premia in the relative pricing of assets traded on the Spanish government securities market. First, we propose a classification of bonds into four different categories based on their degree of liquidity. Second, we estimate liquidity premia, including liquidity parameters in the estimation of the zero-coupon yield curve. The results suggest the existence of a liquidity premium for post-benchmark bonds (both strippable and non-strippable).