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Who Improves or Worsens Liquidity in the Korean Treasury Bond Market?

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  • Jieun Lee

    (Micro & Institutional Economics Team, Economic Research Institute, The Bank of Korea)

Abstract

This study analyzes how heterogenous institutional investors affect Korean Treasury bond liquidity in the over-the-counter (OTC) market using a unique individual bond-level data set over the period from January 2007 to December 2016. We find that bonds with higher foreign bond holding have a greater price impact of trades and lower trading activities, all indicating lower liquidity. The liquidity-reducing effects of foreign investors are stronger for off-the-runs than on-the-runs and for the post-crisis period (2010-2016) than the crisis period (2007-2009). In contrast, bond holdings by domestic financial investment companies contribute to enhancing liquidity. Furthermore, the effect of bond holdings by domestic banks, insurance companies and pension funds on liquidity varies with issuance maturities.

Suggested Citation

  • Jieun Lee, 2018. "Who Improves or Worsens Liquidity in the Korean Treasury Bond Market?," Working Papers 2018-3, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1803
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    More about this item

    Keywords

    Foreign investors; Institutional investors; Price impact; Investor heterogeneity; Treasury bond liquidity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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