| Market Liquidity, the trading ability of a market with low transactioncost in a short period, has four main properties: Immediacy, transaction cost,trading activity and impact of trading on price. Indices such as markettightness, market depth, market resiliency and immediacy etc. have beenwidely used by economists to measure the liquidity of a market. A market, inwhich investors can trade large volume immediately with low cost, andlittle-moving or quick-reversing price after trading, is usually considered tobe a market with high liquidity. Therefore, market liquidity is the mainelement of market quality, and a healthy, efficient market must be a marketwith high liquidity at the same time. Hence, it is of theoretical and practicalmeaning to explore the liquidity of bond markets, which has aroused greatattention from economists and practitioners in the financial market.The existing research on liquidity by economists in China focuses onsummarizing the literatures of qualitative analysis on market-making marketsin foreign countries. In this dissertation, after analyzing the trading system ofInterbank bond market, according to the financial market microstructuretheory, I shall conduct a series of empirical research based on daily data andhigh-frequency intraday data, to give an in-depth perspective on the liquiditystatus of Interbank bond market.Firstly, we compare a set of liquidity measures with relativity analysisbased on daily data and find that bid-ask spread is the best liquidity measureof Interbank bond market. Secondly, we analyze the market liquidity withprincipal components. Thirdly, we describe the weekly pattern of marketliquidity. Fourthly, we choose bid-ask spread as the liquidity measure andexplore the determinants that affect treasury bond liquidity. The empiricalstudy finds that there is no significant difference among the market liquidityat different time. In addition, the factors that affect the treasury bondliquidity include trade size, transaction price, risk (volatility of quotes), yearsto maturity and coupon rate. The change of market maker structure will alsoimpact the exhibition of liquidity. Finally, based on empirical analysis andthe actuality of Interbank bond market, we make some wholesome proposalsto enhance the market liquidity. |
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