Liquidity commonality in the secondary corporate loan market

•Liquidity commonality in the loan market varies across market states.•The impact of liquidity commonality is limited to periods of market stress.•The illiquid loan market is more sensitive to liquidity risk than other markets.

This study is the first to examine liquidity commonality, a measure of liquidity risk, in the U.S. secondary corporate loan market. Liquidity commonality varies substantially across market states, being completely absent during more benign market conditions. The results have implications for banking portfolio management, the pricing of liquidity risk and for regulators interested in the time-variation of liquidity risk in illiquid markets.