An Empirical Study On Corporate Bond Market Liquidity In China

As an important way for enterprises to obtain direct financing, the role of corporate bonds in recent years become more prominent. Corporate bonds is an financing mode having the advantage of commuting tax, financial leverage and preventing the decentralizing of equity financing. Its usage is more prominent in recent years.From relaxing the conditions of the issuance of corporate bonds in2008to encouraging SMEs to direct financing through the issuance of corporate bonds in2009, the attention to corporate bonds in our country in recent years is evident.Since raising the concept of financial liquidity by James Tobin in1958,researchers on the market liquidity has been extensively studied. Amihud and Mendel son (1986) found that stock market has liquidity premium, from then on, verifying the existence of the liquidity premium, modeling the liquidity effects in asset pricing, finding the factors affecting the liquidity are taken into reacher’s horizon, the liquidity premium in asset pricing has been widely confirmed in the international bond market.Liquidity is important to improve the efficiency of the corporate bond financing and to complete the bond market. Liquidity insufficiency will lead to unnecessary of the bond’ existence.In view of the lack of empirical research on corporate debt market liquidity in China, I choose to study the corporate bond market liquidity in China.In this article I summarize the studies in recent years, and then focus in the emprical study of chinese corporate bonds. To enhance the robustness of the empirical test, this article selects three indirect constructed proxy for liquidity—illiquidity of γ, Amivest liquidity ratio, ILLIQ illiquidity measure. To exploring the factors affecting liquidity in bond characteristic, I choose9possible impact factors--maturity, modified duration,age, issue size, coupon rate, credit rating, embedded options, trading size and price volatility. The article choose37corporate bonds trading in the Shanghai Stock Exchange in August2007to February2012.I make an empirical test on the non-balanced panel data using Excel and Stata software.I find, First, The prominent determinants are trading size and price volatility. As a direct measure to proxy liquidity, its influence is proved in this article. To be an important determinant, price volatility affect liquidity in the following channel:Because of imperfection of information disclosure, investors cannot get enough news to judge the trend of price. The credit rating is high in our country, and most bond is warranted by commercial bank investors cannot worry about defaulting, they scarcely speculate because of price volatility.Second, no matter which proxy I use, there is no remarkably liquidity premium in Chinese corporate bond market.