Research On Liquidity And Its Influencing Factors In Corporate Bonds Of China

As one of the most important components of security bond, corporate bondcontributes remarkably to the optimization of financing structure and investingstrategy. Liquidity can characterize the trade performance of corporate bonds andrepresent its vitality. Because of the continuous unrest of the international financialsituation in recent years and all kinds of financial crisis happened frequently,corporate bond liquidity in our country is relatively weak. Under this background, thecorporate bond liquidity and its influencing factors become a hotspot in academicresearch focus.This paper mainly studied two issues: the Chinese corporate bond liquidityconditions and its influencing factors from both macroscopic and microscopic view.Focusing on these two issues, we firstly had a comprehensive literature review homeand abroad on both corporate bond and liquidity. Secondly, we elaborated the relevanttheory of the corporate bond and liquidity. Thirdly, we conducted an empiricalresearch on Chinese corporate bond liquidity, based on an improved effective spreadsliquidity measurement method from Bao, Pan and Wang to measure the sample bondliquidity. Finally, we built panel regression models to analyze the influenceing factorsof bond liquidity from both macroscopic and microscopic view, to explore theinfluence of bond age, issuance, credit rating, trading, yields, macroeconomiccondition, fiscal policy, monetary policy and economic cycle on the bond marketliquidity.This thesis adopted237corporate bonds deals in the Shanghai stock exchangeand Shenzhen stock exchange from January1,2003to December31,2012as theresearch sample. The empirical results show that the corporate bond liquidity withinthe samples fluctuated dramatically. Bond age, maturity, yield-to-maturity, and GDPgrowth are negatively correlated with liquidity. Issuance, credit rating, price changeratio, volume, the total trading day, the M2growth rate, business climate index have apositive correlation with liquidity. There’s no significant relationship between fiscalexpenditure growth rate and liquidity. The results show that the longer the bond ageand remaining life are, the lower level of liquidity in the bond will be; the higher theyields is, the lower level of liquidity in the bond will be; bond issuance, higher creditrating, volume, the total trading day, price rising trend, the expansionary monetary policy and economic boom have significant positive effects on liquidity; fiscal policyhas no significant influence on bond market liquidity; because of the particularity ofthe sample and sample interval, GDP growth have a negative relationship withliquidity. These conclusions are not only important for investors to better understandcorporate bond liquidity and optimize investment strategy, but also help enterprisesand departments to dig out valuable information from the influencing factors, furtherimproving corporate bond liquidity.