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Price discovery in China's inter-bank bond market

Author

Listed:
  • Wu, Lei
  • Liu, Chunlin
  • Meng, Qingbin
  • Zeng, Hongchao

Abstract

This paper examines the contributions of individual banks to price discovery in China's inter-bank bond market. In this market, large state commercial banks, city commercial banks, and approved foreign banks act as dealers to facilitate the trading process. We propose a structural model to capture the dynamic relationships among the quotes of these dealers. Our empirical results show that while large state commercial banks have advantages over other dealers in obtaining new information, they take longer to adjust their quotes to the new equilibrium. Meanwhile, foreign banks can incorporate new information into their quotes quickly and efficiently, thus contributing more to price discovery than most Chinese banks and sometimes even large state commercial banks.

Suggested Citation

  • Wu, Lei & Liu, Chunlin & Meng, Qingbin & Zeng, Hongchao, 2018. "Price discovery in China's inter-bank bond market," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 84-98.
    • Handle: RePEc:eee:pacfin:v:48:y:2018:i:c:p:84-98
    DOI: 10.1016/j.pacfin.2017.12.010
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    More about this item

    Keywords

    Price discovery; Dealership market; Dealers' quotations; Price efficiency; Quoting activity; China's inter-bank bond market;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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