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Determinants of bid-ask spread in emerging sovereign bond markets

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  • Emre Su

    (Istanbul Technical University)

  • Kaya Tokmakçıoğlu

    (Istanbul Technical University)

Abstract

Major emerging market countries issue significant amounts of local currency bonds in order to finance their budget deficits. As liquidity is a substantial feature of the financial markets, understanding bond liquidity dynamics is essential. The bid-ask spread is an important measure of bond liquidity and reflects explicit transaction costs. We apply a panel regression model in order to analyze bond-level and country-level characteristics’ effects on bond liquidity and bid-ask spread. Results show that volatility, credit risk and duration have significant effects on emerging market bond liquidity. Emerging market sovereign bonds with lower volatility, lower credit risk and shorter duration have narrower bid-ask spreads, on average.

Suggested Citation

  • Emre Su & Kaya Tokmakçıoğlu, 2023. "Determinants of bid-ask spread in emerging sovereign bond markets," Journal of Asset Management, Palgrave Macmillan, vol. 24(5), pages 346-352, September.
    • Handle: RePEc:pal:assmgt:v:24:y:2023:i:5:d:10.1057_s41260-023-00305-4
    DOI: 10.1057/s41260-023-00305-4
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    References listed on IDEAS

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