The Impact of COVID-19 on the Liquidity of Chinese Corporate Bonds

Xinyi Cai () and Jianing Zhang ()
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Xinyi Cai: Wenzhou-Kean University
Jianing Zhang: Wenzhou-Kean University

A chapter in Eurasian Business and Economics Perspectives, 2023, pp 285-300 from Springer

Abstract: Abstract. This paper examines the impact of the COVID-19 pandemic on the liquidity of Chinese corporate bonds. We use the daily number of new cases as a proxy for the COVID-19 pandemic and the Amihud price-impact measure as a proxy for bond liquidity. The results of the univariate regression and the difference-in-differences method show that the COVID-19 pandemic has a significantly negative impact on bond liquidity. However, this negative impact disappears after controlling for the bond age, interest risk, credit level, and daily trading volume. The above results are robust when using bid-ask spreads as an alternative illiquidity measure. We also do not find a nonlinear quadratic relationship between new cases and bond liquidity. Furthermore, we divide the sample into pre- and post-pandemic periods and investigate the determinants of corporate bond liquidity. The regression results show that the influence of bond age on liquidity weakens during the COVID-19 pandemic, while the influence of interest rates and credit levels strengthens. The present study provides retail investors and the government with an assessment of the current situation in China’s corporate bond market in the wake of the pandemic, thus allowing more sound investments and more appropriate interventions.

Keywords: COVID-19 pandemic; Liquidity; Corporate bond; Chinese market (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-031-30061-5_18

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DOI: 10.1007/978-3-031-30061-5_18

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