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Regulations in the U.S. and Bond Market Liquidity

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  • Viet Tien Ho and Thi Nam Phuong Ho

    (University of Economics Ho Chi Minh City)

Abstract

This paper investigates the impacts of financial regulations on bond market liquidity, focusing on the U.S. regulations such as the Dodd-Frank Act and the Volcker Rule. Our analyses at market level and bond level suggest that the mentioned regulations do not harm the liquidity of the bond market as a whole. It is evident that the regulations actually improve the bond market liquidity, especially for investment grade bonds. Non-investment grade bonds are not affected by changes in regulations. These findings are also evident in the event study of announcement effects regarding regulations milestones. The analysis also suggests that the transaction costs are affected by the changes in regulations more than the price impacts. Additionally, the event study indicates that the anticipation of regulatory changes do lead to lower liquidity but these impacts only occur for big milestones and eventually die out.

Suggested Citation

  • Viet Tien Ho and Thi Nam Phuong Ho, 2020. "Regulations in the U.S. and Bond Market Liquidity," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 45(1), pages 3-29, March.
    • Handle: RePEc:jed:journl:v:45:y:2020:i:1:p:3-29
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    References listed on IDEAS

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    More about this item

    Keywords

    Bond market; Regulation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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