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Key Determinants of Liquidity in the Thai Bond Market

Author

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  • Akkharaphol Chabchitrchaidol

    (Bank of Thailand)

  • Sakkapop Panyanukul

    (Bank of Thailand)

Abstract

The Thai bond market has seen significant growth in the years following the Asian financial crisis in 1997. Authorities have recognized the importance and the need for deep and liquid bond markets and the role it plays in enhancing financial market resilience during times of stress. Markets for government securities also play an important role in providing a basis for a robust and efficient financial system as a whole. While steps have been taken to ensure that basic infrastructure in the bond market has been put in place, the lack of liquidity in the bond market has remained a major obstacle to market development. Not surprisingly, this lack of liquidity has made investors reluctant to trade bonds actively, with a large number of market players holding government bonds to maturity, in order not to incur daily mark-to-market losses. This paper identifies and analyzes the key determinants of liquidity in the Thai bond market, measured by bid-ask spreads on government bonds. We draw upon these determinants to find ways to improve liquidity in the secondary market. The paper attempts to determine what policy actions the government and central bank can take to ensure that these key determinants are achieved, providing recommendations for authorities’ role in creating an environment which best facilitates a liquid secondary market.

Suggested Citation

  • Akkharaphol Chabchitrchaidol & Sakkapop Panyanukul, 2005. "Key Determinants of Liquidity in the Thai Bond Market," Working Papers 2005-05, Monetary Policy Group, Bank of Thailand.
    • Handle: RePEc:bth:wpaper:2005-05
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    File URL: http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscusPaper/doclip_discussion/dp072005_thai.pdf
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    Citations

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    Cited by:

    1. Prince Dubois HIKOUATCHA KENFACK, 2018. "determinants of Illiquidity on emerging stock markets:," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 9(2), pages 2-19, December.
    2. Forget M Kapingura, 2015. "Macroeconomic Determinants of Liquidity of the Bond Market in Africa: Case Study of South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 7(3), pages 88-103.
    3. Prince Dubois HIKOUATCHA KENFACK, 2018. "the determinants of Illiquidity on emerging stock markets:," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 9(2), pages 2-19, December.
    4. Yamani, Ehab, 2023. "Return–volume nexus in financial markets: A survey of research," Research in International Business and Finance, Elsevier, vol. 65(C).
    5. Chaipat Poonpatpibul & Surach Tanboon & Pornnapa Leelapornchai, 2006. "The Role of Financial Integration in East Asia in Promoting Regional Growth and Stability," Working Papers 2006-05, Monetary Policy Group, Bank of Thailand.

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