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Liquidity of China government bond market: Measures and Driving Forces

Author

Listed:
  • Gaofeng Han

    (Hong Kong Institute for Monetary and Financial Research)

  • Hui Miao

    (International Monetary Fund)

  • Yabin Wang

    (Hong Kong Monetary Authority)

Abstract

We construct a daily liquidity index of the China government bond market using transaction data from the national interbank market over the past twenty years. The index is a composite of popular price-based and quantity-based metrics of liquidity. The composite indexes, obtained by averaging across different metrics or by applying principal component analysis, both point to a better liquidity condition after 2010. Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial market volatility, but display less correlation to global macrofinancial indicators. Our findings suggest that further deepening of the bond market would support domestic financial stability and monetary operations down the road.

Suggested Citation

  • Gaofeng Han & Hui Miao & Yabin Wang, 2020. "Liquidity of China government bond market: Measures and Driving Forces," GRU Working Paper Series GRU_2020_030, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2020_030
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    More about this item

    Keywords

    China government bond; Bond liquidity; Principal component analysis; Regime switching model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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