The Empirical Research On The Liquidity Effect Of Corporate Bond Market In China

Liquidity is prerequisite for the normal operation of financial market, the effective allocation of resources and economic growth. In recent years, especially after the subprime crisis, regulators and market participants of the developed countries in Europe and America market found that the corporate bond market is not liquid. They even believe that the biggest risk in the corporate bond market is not interest rate risk or credit risk, but the liquidity risk. In China, although the corporate bond market is encouraged to be developing, the development of corporate bond market is relatively low. Compared with the developed countries, the liquidity problem of Chinese corporate bond market is more prominent, the liquidity is related to the market efficiency, asset pricing and corporate investment and financing. The research on the liquidity of corporate bonds market, liquidity influencing factors and liquidity effect helps to reveal the relationship between the liquidity and price of corporate bond. It has positive academic significance to improving pricing method of corporate bond and "the credit spread puzzle" problem. At the same time, it also has the important practical significance to the development of corporate bond market. Using data in Chinese corporate bond market, the paper study the measuring the liquidity of corporate bonds, liquidity influencing factors and liquidity effect.First, market liquidity includes the connotations of trade price, trade volume and trade speed, there exists dimension effect in market liquidity measuring. Using daily trade and quote data in Chinese corporate bond market and the bid-ask spread, trade quantity, trade interval time, auto covariance of the price change and price impact measures as liquidity proxies measuring the different dimensions, we propose a hypothesis that there exists significant dimension effect in market liquidity measuring. The empirical research finds that there exists significant dimension effect in market liquidity measuring that the information of trade price, trade volume and trade speed overlaps less. The measures measuring single dimension such as bid-ask spread, trade quantity and trade interval time provide limited information of the market liquidity. The measures measuring more than one dimension such as auto covariance of the price change and price impact measure the status of the market liquidity more fully. Conclusion can be passed from robust test of the time window, the number of minimum sample and the interval time between adjacent prices.Secondly, basing on price impact, trade interval time and trade volume to measure the liquidity of corporate bonds, the paper empirically analyses the micro influencing factors of corporate bond market liquidity using differ-nt time window. The result shows that the issuing size, coupon rate seems to have a positive effect on liquidity. The credit information of the bonds such as bond credit rate, and security, age and maturity appear to be inversely correlated to liquidity. The special term positively correlates with trade volume, and negatively correlates with trade interval time. Industry attribute of issuer has no significant effect on liquidity.Once more, using different sample period and considering the influencing of inter-bank bond market, the paper studies the dynamic relationship of liquidity among security markets in China under the framework of VAR. The empirical research finds that there is liquidity spillover effect betweerr stock market and exchange bond market. The relationship of liquidity between treasury bond and corporate credit linked bond is orthokinetic. The liquidity of inter-bank bond market reflects macro-liquidity. The relationship of liquidity between exchange bond market and inter-bank bond market is affected by macro-liquidity in short-term and by liquidity spillover effect in long-term. Since the liquidity linkage between stock market and corporate credit linked bond market is close, the study of liquidity spillover effect of security market should consider the influencing of corporate credit linked bond market.Finally, the liquidity effect of the corporate bond market is an important explanation for "the credit spread puzzle" phenomenon. Basing on the empirical research of fully fledged financial countries, liquidity effect exists in the corporate bond market. Using daily data in Chinese corporate bond market, paper studies the liquidity effect of corporate bond market using the time fixed effects model of panel data. In the study, we use yield spreads based on duration adjustment as the dependent variable, credit rating, financial index, the volatility of issuer stock as controlled variable, the turnover, trade interval time, price impact, auto covariance of the price change, and price dispersion as liquidity measure, and also treat the endogeneity, traditional credit spread and sample selection for a robust test. The results show that the goodness of fit of time fixed effects model is much better than that of individual fixed effects model, so time fixed effects model is more suitable to do the research on the liquidity effect of corporate bond market. Liquidity effect exists in the corporate bond market in China which is deduced from the fact that the illiquidity of bonds measured by price impact and auto covariance of the price change influences bonds’credit spread significantly and positively. The conclusion can pass the robust test of the endogeneity problem and different credit quality bonds sample. But there doesn’t exist liquidity effect in the corporate bond market during extreme market period.