The Illiquidity Of Enterprise Bond Market And Its Effect On The Price

The vitality and mobility of financial market are connected with each other, financialcrisis always comes with the the illiquidity problems of capital market. The study of itsilliquidity has been a hot topic among scholars, especially the part of combination ofliquidity, asset pricing and risk management. The study of illiquidity focuses more onthe stock market, but the liquidity of bond market is also being a hot topic recently. Therapid development of bond business in China has made the bond market turn into a veryimportant financing platform in our society. As one of the debentures, enterprise debt’sproportion in the bond market has been improved, enterprise debt financing has been amain method of direct financing. The bond financing scale of firms has lead the stockmarket, keeping a higher level in the area of direct financing. The effect of bond marketover financing scale has been improved a lot.Above all, the entire study of the illiquidity risk of Chinese bond market will not onlyhelp to reveal the type of credit bonds pricing mechanism, but also provide reference totest the efficiency of Chinese credit bond market. Different scholar has different choiceon the index of illiquidity risk. This essay is based on a illiquid index to measurethose illiquidity problems in Chinese corporate bond market and its effect on bondmarket. The mainly research contents and method are the followings.In theory analysis, according to some relative literature, this article will analyze theliquidity and premium of the bond market and the status of illiquidity study in China,then summarize the future development of it. Then, measure the liquidity and illiquidityfrom four angles by analogy analysis. Based on the liquidity4D theory, which meansmarket breadth, instantaneity, market depth and elasticity and so on, this essay putforward price method based on the market breadth, trade method based on market depthand some other methods according to market depth and breadth. This essay will putforward illiquidity theory which is trade amount, trade speed, trade cost and the effect ofprice. According to the four aspects, this essay put forward the method to measure theilliquidity.In the empirical analysis, through autocovariance of price change, this essay wouldmeasure the illiquidity of bond market and describe the results of illiquid index,dynamic of2and3.We all know that former study has proved the relationship between and issuance age and maturity. Empirical found that, from2009and2011, the index ofwhich affected by age has rised from0.0387to0.0719, the index in the sample period is0.0571. The index of maturity rises from0.0264to0.0688, while the sample index is0.0450. is negative correlation with issuance. Then, empirical found that therelationship of7-year-firm bond, illiquidity risk, credit risk and interest risk. Excessreturn is affected by credit risk and interest risk, the index of credit index is as high as1.5. Although the index of illiquidity risk is only0.0075, but it tells us that we can’tignore it. Finally, we measure illiquidity risk, credit risk and interest rate risk, as well asthe impact of the excess yield by VAR model. The impulse response function shows thatilliquidity risk, credit risk and interest rate risk have positive impact on the excess returnrates. The impact of credit risk and interest rate risk in the second period to reach themaximum gradually disappeared in eight and seven period, respectively illiquidityshocks that gradually decreases and gradually disappeared. The final variancedecomposition analysis shows that changes in excess yield a variance, the largestcontribution itself in more than90%after the fourth period. Credit risk contribution rateof about8%and the minimum illiquidity contribution is only about5%.All in all, this essay from the angel of illiquid index systematically analyzes theilliquidity risk problems of Chinese enterprises bond market and researches the effectproblems of enterprises bond market to the bond price. This is a good reference formaking a reasonable price of firm bond and the type of credit bonds pricing, what’smore this essay would offer theoretical and practical bases for further research in thisfield.