Determinants of bid-ask spread in emerging sovereign bond markets

Emre Su () and Kaya Tokmakçıoğlu ()
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Emre Su: Istanbul Technical University
Kaya Tokmakçıoğlu: Istanbul Technical University

Journal of Asset Management, 2023, vol. 24, issue 5, No 2, 346-352

Abstract: Abstract Major emerging market countries issue significant amounts of local currency bonds in order to finance their budget deficits. As liquidity is a substantial feature of the financial markets, understanding bond liquidity dynamics is essential. The bid-ask spread is an important measure of bond liquidity and reflects explicit transaction costs. We apply a panel regression model in order to analyze bond-level and country-level characteristics’ effects on bond liquidity and bid-ask spread. Results show that volatility, credit risk and duration have significant effects on emerging market bond liquidity. Emerging market sovereign bonds with lower volatility, lower credit risk and shorter duration have narrower bid-ask spreads, on average.

Keywords: Bid-ask spread; Market liquidity; Emerging markets; Sovereign bond market (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41260-023-00305-4

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