The Influence Of The Introduction Of Bond ETFs On The Liquidity Of Underlying Bonds In China

In March 2013,the first bond ETF,Guotai 5-Year China Treasury Note ETF,was launched,marking the entrance into the development of the ETF 2.0 era in China.However,there are few studies on bond ETFs,especially on questions whether the introduction of the bond ETF would help to improve the liquidity of the underlying bonds and whether the liquidity index can be used as the signal of the quantitative trading on the bond ETF and the underlying.In this paper,we set the Boshi SSE Corporate Bond 30 ETF as an example to study the impact on its underlying bonds,and the market-timing trading of the bond ETF and its underlying bonds.Daily trading data is used in this paper and the sample period is from 146 trading days before the introduction of the bond ETF to January 9th,2017.Firstly,we conduct the principal component analysis based on the liquidity indexes proposed by Bao,Pan and Wang(2010),Amihud(2002)et al.and the results from the paired two-sample t-tests show the principal component comprehensive index increases at the 1%significance level.Furthermore,this paper uses the random effects model of panel data to examine the factors of the liquidity changes of the underlying bonds.We find that the introduction of the bond ETF can significantly improve the liquidity of the underlying bonds in terms of spreads,trading frequencies and the turnover.There is a significant positive correlation between the time dummy variable and the principal component comprehensive index at 1%level.And there is a significant negative correlation between the inter-bank 7-day bond repo rate and principal component comprehensive index,indicating that when the market capitalization environment is tight,the bond transaction volume and the liquidity will decrease.Then we make the robustness test,whose results further confirm the above conclusion.Finally,this paper takes the principal component comprehensive index as the signal,and adopts the double average strategy and the Bollinger Belt strategy to test the market-timing trading on the bond ETF and the underlying bond.The results show that the double average strategy can achieve better results,and the effect of the strategy used on the bond ETF is better than that on the corporate bond.This part is mainly to help investors to judge the ups and downs of the prices of bond ETFs and plays as a guidance in the process of investment.