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Liquidty Analysis of Government Securities in the Secondary Market and Recommendations for its Improvement

Mahmut Kara ()

Journal of BRSA Banking and Financial Markets, 2012, vol. 6, issue 2, 113-146

Abstract: This study aims to analyze the effects of volatility and trading volume on secondary market liquidity of government securities. Liquidity of government securities was measured by using the end-day bid and ask prices in the ISE. Zero coupon benchmark government security was chosen for this analysis since it has the most trading volume in the government bond market. Moreover, 5 and 10 year fixed coupon benchmarks were also analzed. In order to include the effects of global financial crises to the analysis, which was occured in the second half of 2008, analysis period was chosen as December 2007 to December 2010. In this study, ARMA econometric method was used with daily data. Empirical findings reveal that there exist a positive and singnificant relationship between liquidty of benchmark government security in secondary market and trading volume of this security. Results also confirmed that the higher the volatility of the benchmark security the lesser the liquidity of the government securities in the secondary market. As a result, volatility and trading volume of government benchmark securities play a critical role on government benchmark security's liquidity in the secondary market.

Keywords: Bond Market; Liquidity; Government Securities. (search for similar items in EconPapers)
JEL-codes: H10 H11 (search for similar items in EconPapers)
Date: 2012
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