Price discovery in China's inter-bank bond market

Lei Wu, Chunlin Liu, Qingbin Meng and Hongchao Zeng

Pacific-Basin Finance Journal, 2018, vol. 48, issue C, 84-98

Abstract: This paper examines the contributions of individual banks to price discovery in China's inter-bank bond market. In this market, large state commercial banks, city commercial banks, and approved foreign banks act as dealers to facilitate the trading process. We propose a structural model to capture the dynamic relationships among the quotes of these dealers. Our empirical results show that while large state commercial banks have advantages over other dealers in obtaining new information, they take longer to adjust their quotes to the new equilibrium. Meanwhile, foreign banks can incorporate new information into their quotes quickly and efficiently, thus contributing more to price discovery than most Chinese banks and sometimes even large state commercial banks.

Keywords: Price discovery; Dealership market; Dealers' quotations; Price efficiency; Quoting activity; China's inter-bank bond market (search for similar items in EconPapers)
JEL-codes: C32 G14 G15 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:48:y:2018:i:c:p:84-98

DOI: 10.1016/j.pacfin.2017.12.010

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