A Study On The Liquidity Of Corporate Bonds In Different Banks In China

In 2006-2012, the spread of the financial crisis triggered by the subprime mortgage crisis in the United States and the European debt crisis have influenced many important economies all over the world, and it gradually attracted people’s attention to the impact of bond market in the two largest economies. In recent years, Chinese bond market is developing rapidly. The bond market is larger than the stock market nowadays, and it has become an increasingly important investment vehicle. However, empirical studies of the domestic bond market liquidity are still relatively scarce. This article intends to study liquidity characteristics of corporate bonds in the bond market of China, especially the inter-bank bond market, which is the most important bond market in China for the time being. The purpose is to apply the classic Fama-Macbeth model to Chinese inter-bank corporate bond data for empirical research. By choosing the characteristics of bonds which represents a potential liquidity of bond and liquidity indicators(the independent variable), the author trys to examine the quantitative interpretation of the extent of the various factors on bond spreads (the dependent variable), expecting to reveal key factors that should be of concern in the bond prices influencing factors; to analyze and compare the impact of various factors at different stages of the market cycle for the bond spreads; and to comparing bond characteristics and liquidity depending on the risk rating to show their the difference in explanation power.The main innovation of this paper, and the conclusion is that:(1) Selected a reasonable sample. Chinese inter-bank bond market size and trading volume accounted for most important position in Chinese bond market, and corporate bond is one of the more active species, and has comparability with foreign corporate bonds. This sample selection method is able to verify theoretical model of the liquidity measurement in Chinese bond market, and can reveal the difference between domestic and international bond markets, which providing a reference to the future development of the bond market. The results show that the bond characteristics and liquidity indicators are significant.(2) Relatively unique division of the time period. The bond market is seemed as a "safe haven" of market downturn stage by investors. For different market environment, the impact of the liquidity factor for the bond pricing is not similar. This paper provide a period-divided market, and find that, under different market environment the liquidity of the bonds factors do exist different explaining power, but not quite the same as the foreign markets.(3) For corporate bonds of different risk rating classification research is very interesting. In China’s bond market, default risk is relatively low, especially corporate bonds. According to the research of foreign literatures in the pricing of the different grades of bonds, the explaining power of bond characteristics and liquidity indicators should also be different. After analyzing the grouped bond which according to the risk rating. For higher risk corporate bonds in China’s inter-bank market, liquidity factors have better explain ability.