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Measuring corporate bond liquidity in emerging market economies: price- vs quantity-based measures

Allaudeen Hameed, Jean Helwege, Ran Li and Frank Packer

A chapter in Asia-Pacific fixed income markets: evolving structure, participation and pricing, 2019, vol. 102, pp 45-62 from Bank for International Settlements

Abstract: Prior research suggests that corporate bond issuance in emerging market economies increases when the markets exhibit substantial liquidity. While the Malaysian corporate bond market has grown dramatically over the last few decades, having now become one of the largest among emerging market economies, its liquidity has not progressed at a similar pace. Illiquidity may hamper access to local currency debt financing, so its measurement is an important topic for regulators and issuers. We investigate the liquidity of corporate bonds in Malaysia and find that quantity-based measures of liquidity appear more reliable than price-based measures. Low liquidity appears to characterise both conventional and Islamic corporate bonds in Malaysia.

Date: 2019
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Handle: RePEc:bis:bisbpc:102-07