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Corporate bond trading in Indonesia: an empirical study of the role of volume and volatility

S. Utami Puspaputri and Sigit Wibowo

International Journal of Bonds and Derivatives, 2017, vol. 3, issue 3, 204-222

Abstract: We examine the relationship between trading activity and price volatility in Indonesia corporate bond market using 2010-2014 data. We also investigate the role of liquidity and credit quality in this relationship. We find that volume and trading frequency have a positive and significant correlation to bond volatility, which is consistent with the information-based model. The results also suggest that liquidity plays an important role in their relationship, in which illiquidity causing stronger relationship between trading volume and price volatility. Credit quality, however, do not have similar effects on volatility where AAA-rated bonds tend to have higher volatility.

Keywords: bond volatility; bond liquidity; corporate bond; emerging market; Indonesia. (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:ids:ijbder:v:3:y:2017:i:3:p:204-222