• ISSN: 2301-3567 (Print), 2972-3981 (Online)
    • Abbreviated Title: J. Econ. Bus. Manag.
    • Frequency: Quarterly
    • DOI: 10.18178/JOEBM
    • Editor-in-Chief: Prof. Eunjin Hwang
    • Executive Editor: Ms. Fiona Chu
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HOME > Archive > 2019 > Volume 7 Number 4 (Nov. 2019) >
JOEBM 2019 Vol.7(4): 143-151 ISSN: 2301-3567
DOI: 10.18178/joebm.2019.7.4.597

The Impact of Market Fluctuations on Financial Bond Liquidity

Tianyi He

Abstract—The global financial crises often strongly affect the decisions of investors. This paper studies whether domestic and foreign institutional investors change their investment strategies during crisis periods by shifting from high-risk and high-yield investment products to more conservative bond-related securities. In particular, this paper focuses mainly on financial bonds in the interbank market. This paper examines the causes of pricing discrepancies of financial bonds between financial crisis periods and normal market conditions. In addition, as China's bond market is still at its developing phase, this paper studies whether some widely used liquidity measures in the US and European markets play a significant role in the pricing of China's financial bonds. The result shows that liquidity explains an additional 28% of bond yield spread during normal market conditions, while it increases the R-squared from 7.58% to 45.93% during the three crisis periods.

Index Terms—Interbank market, financial bonds, yield to maturity, liquidity, financial crisis.

Tianyi He is with Nanjing University of Science of Technology, Jiangsu, China (e-mail: hetianyi@njust.edu.cn).

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Cite:Tianyi He, "The Impact of Market Fluctuations on Financial Bond Liquidity," Journal of Economics, Business and Management vol. 7, no. 4, pp. 143-151, 2019.

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