The Relation Between Bond Price Volatility And Trading Activity

With the rapid development of China’s economy,China’s capital market structure is gradually improving,and the bond market has become an important pillar of China’s financial market,and corporate bonds are particularly outstanding.Since its inception in 2007,corporate bonds have continued to develop over the past ten years,and the scale of issuance has continued to expand,which has become an important financing tool for enterprises.However,various problems have followed.Since 2015,there have been frequent defaults in China’s corporate bond market,and credit risks have continued to expand.Among them,the issuance of corporate bonds below AA has reached 20%,and the default entities have even spread by private enterprises.When it comes to state-owned enterprises,the “rigid redemption” breaks the warning of the entire bond market and needs to pay close attention to the abnormal fluctuations in prices.The trading activities of the corporate bond market contain market information at that point in time.By studying the relationship between it and price volatility,the law of bond price volatility and the reasons for the formation of volatility can be found.Therefore,it is especially necessary to conduct in-depth research on the relationship between the volume and price of corporate bonds from the perspective of theory and evidence.Based on the corporate bond weekly data issued in China from 2008 to 2017 and traded on the Shanghai and Shenzhen Stock Exchanges,this paper studies the relationship between bond price volatility and trading activities,so the volume and size are selected as explanatory variables.Construct the price volatility measure as the explanatory variable,and use the bond characteristics such as bond rating,issue size,expiration time,issue time,and coupon rate as control variables,and calculate the average coefficient and Fama-Macbeth t statistic by cross-sectional regression results.In order to further study the relationship between price fluctuations and trading activities under different credit quality,maturity,age,industry,and economic cycle,grouping the characteristics of each bond and the situation,by comparing the regression results of each subsample and cross-group regression.As a result,factors that influence the relationship between bond price volatility and trading activity are analyzed.Research shows that there is a positive correlation between trading volume,trading frequency and trading size and price volatility.The relationship between higher-risk bond trading activities and volatility is stronger;the relationship between lower-risk bond trading activities and volatility is weaker.For bonds with lower liquidity,the relationship between price volatility and trading activity is stronger,while for bonds with higher liquidity,the relationship between price volatility and trading activity is weaker.The relationship between low-risk bond trading activity and volatility is weak.Compared with the period of leverage,the relationship between trading activity and volatility is stronger during the deleveraging period.It has also been found that the volume-price relationship between direct bonds and non-financial industry bonds is mainly derived from the trading frequency and the volume-price relationship between redeemable and resaleable bonds and financial industry bonds is mainly derived from the trading size.