Empirical Analysis Of The Liquidity In China's Government Bond Markets

Government bond markets play an important role in economics. In china, government bond markets are segmented into the Shanghai inter-bank market, the Shanghai and Shenzhen exchange markets and over-the-counter market. Our government bond markets which have developed very soon in these years still face many problems. One major problem is that the markets are not very liquid so that the markets can't perform efficiently. Chapter 1 introduces notion of the liquidity, some measurement index of it and influential factors. The above concepts are inspired by the up-to-date academic articles. Among those, the influential factors are the most important part, comprising market microstructure and the types of bonds and the market participants.Chapter 2 is about what is going on in China's government bond markets. And it also makes a comparison between Shanghai inter-bank market and the exchange markets on the trade volumes, market participants and the varieties of the transactions.Chapter 3 expounds an index to measure the liquidity of the government bond markets. Using the index, I analyze the trend of the market liquidity, test its distribution and make an international comparison. Then, I reach my conclusions that:1. The market liquidity of the spot transactions in Shanghai exchange market has been improving since 1997, but it has a small decline in 2003. The market liquidity of the repurchase transactions has been improved in 2000 and 2001.2. About the spot transactions, the Shanghai exchange has the best liquidity, the second is the inter-bank market, while the Shenzhen exchange is the last; about the repurchase transactions, the inter-bank market get the best liquidity.3. The medium-term bonds are more liquid than the long-term bonds. The bonds that have large circulations are more liquid than which have small circulations.4. The market liquidity is distinct among working days and months remarkably.5. Though the liquidity in China's government bond markets has received great improvements in these years, but it still hang behind that in the mature markets.Chapter 4: Firstly, I analyze the components of the price spread. To increase the liquidity, the most important thing is to decrease the informational asymmetry in the market. Secondly, I examine how the relating policies influence the liquidity. It is evident that there are three policies that improve the market liquidity in the long run. After that, I analyze the correlation between the stock market and the liquidity of government bond markets. The conclusion is that the stock index and the liquidity are positively correlated. Also the stock issues have influence on the liquidity.At the last, I point out the causes to low liquidity. The empirical analyses in Chapter 3 and 4 are the highlights of this paper. By these analyses, we could have a clear understanding about the liquidity in China's government bond markets. Further we draw the conclusions about the causes to the low liquidity, which indicate the future directions to improve.Chapter 5 puts forward some proposals to improve the markets liquidity on the basis of former analyses.As a postgraduate thesis, this article is still under correction. Your advices would always be appreciated!...