Research On The Price Discovery Of Market Makers In Interbank Bond Market

Interbank bond market is the biggest OTC market in our country, also the main body of China's bond market, the bond stock and trading volume in the bond market in the absolute proportion, also the first place where conduct Bilateral offer business. Therefore, the study of market making rule consummates the interbank bond market system, promotes the interbank bond market stability and healthy development. The core of the market microstructure theory is price discovery, which is a dynamic process and the price formation process in the market transactions. The market maker in the Interbank bond market quote the prices of certain bonds, investors according to the market maker's bid and offer price to decide whether to trade and the volume of transactions. In order to prevent make market failure, based on the impact of the investor's behavior on the position and profit, market maker update the price in time, thereby contributing to the price formation.This paper uses bond net value which converted from the yield to maturity quoted by various types of financial institutions as research samples. First of all, the stationary test of the selected samples, due to the time series needed to be integrated of order 1, utilizing the unit root test and first order difference of augmented Dickey-Fuller to verify the variable stationary, thereby avoiding spurious regression phenomenon. Secondly, cointegration tests of the selected samples, based on the residual analysis after regression to determine the long term equilibrium relationship between market maker's quotes. Thirdly, establish vector error correction model, when analysis the time series of different types of market maker's quote exist long-run equilibrium relationship, at the same time, correcting the vector error on the short term draft. Finally, through the state space model to illustrate the process of market maker quote, trading, update quote, price adjustment feedback to the price, using information share model to measure and compare the contribution of different types market makers quote to the price discovery, then find out the lead-lag or simultaneous relationship between them.Empirical study shows that, the foreign banks'offer contain the highest information, followed by non-bank financial institutions, state-owned commercial banks'quote relatively contain less information. Therefore, relax the rule of market maker admittance could increase the competition between the different type of market maker and also improve the market efficiency.