It has been long recognized that endogenous default probabilities cannot explain spreads between corporate and the riskless bonds. Recently, this issue has been subjected to rigorous scrutiny. Previous studies have found that for investment-grade debt, structural models explain only 15-25% of...

In this paper, we investigate components of the bond bid-ask spreads for the emerging market in Russian sovereign bonds in the late 90s. We identify the size of the bid-ask spreads with liquidity because many of trades in illiquid securities happen in closed transactions and accurate information...

How market frictions affect price volatility is an important issue in finance. In this paper we propose a derivation of the price volatility in the model of Bayesian updates. We link price volatility to the fundamental (asset) volatility and the participation rate of the informed trader and...