Liquidity of China’s Government Bond Market: Measures and Driving Forces

Gaofeng Han, Hui Miao and Yabin Wang

MPRA Paper from University Library of Munich, Germany

Abstract: We construct a daily liquidity index of China’s government bond market using transaction data from the national interbank market over the past twenty years. The index is a composite of popular price-based and quantity-based metrics of liquidity. The composite indexes, obtained by averaging across different metrics or by applying principal component analysis, both point to a better liquidity condition after 2010. Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial market volatility, but display less correlation to global macrofinancial indicators. Our findings suggest that further deepening of government bond market would support domestic financial stability and monetary operations down the road.

Keywords: Government bond; Bond liquidity; Principal component analysis; Regime switching model (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2020-11-01
New Economics Papers: this item is included in nep-cna
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