If bond indices has higher turnover than stock, then why are bond indices less liquid?
I think the turnover ofthe bond index refers to the fact that constituent bonds have to be replaced within the index on a continous basis due to the fact that the lifetime of the bonds is limited. This makes the index construction less constant than for example an equity index which impacts its liquity. Regards,
Turnover and liquidity are entirely different concepts.
Fixed income indices have:
- high turnover since the constituent bonds mature and need to be replaced.
- low liquidity since the constituent bonds are generally illiquid.
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