IDEAS home Printed from https://ideas.repec.org/h/bis/bisbpc/102-07.html
   My bibliography  Save this book chapter

Measuring corporate bond liquidity in emerging market economies: price- vs quantity-based measures

In: Asia-Pacific fixed income markets: evolving structure, participation and pricing

Author

Listed:
  • Allaudeen Hameed
  • Jean Helwege
  • Ran Li
  • Frank Packer

Abstract

Prior research suggests that corporate bond issuance in emerging market economies increases when the markets exhibit substantial liquidity. While the Malaysian corporate bond market has grown dramatically over the last few decades, having now become one of the largest among emerging market economies, its liquidity has not progressed at a similar pace. Illiquidity may hamper access to local currency debt financing, so its measurement is an important topic for regulators and issuers. We investigate the liquidity of corporate bonds in Malaysia and find that quantity-based measures of liquidity appear more reliable than price-based measures. Low liquidity appears to characterise both conventional and Islamic corporate bonds in Malaysia.

Suggested Citation

  • Allaudeen Hameed & Jean Helwege & Ran Li & Frank Packer, 2019. "Measuring corporate bond liquidity in emerging market economies: price- vs quantity-based measures," BIS Papers chapters, in: Bank for International Settlements (ed.), Asia-Pacific fixed income markets: evolving structure, participation and pricing, volume 102, pages 45-62, Bank for International Settlements.
    • Handle: RePEc:bis:bisbpc:102-07
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/bppdf/bispap102_e_rh.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marco Rossi, 2014. "Realized Volatility, Liquidity, and Corporate Yield Spreads," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-42.
    2. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
    3. Michael A. Goldstein & Edith S. Hotchkiss & Erik R. Sirri, 2007. "Transparency and Liquidity: A Controlled Experiment on Corporate Bonds," Review of Financial Studies, Society for Financial Studies, vol. 20(2), pages 235-273.
    4. Song Han & Hao Zhou, 2016. "Effects of Liquidity on the Non-Default Component of Corporate Yield Spreads: Evidence from Intraday Transactions Data," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-49, September.
    5. Lesmond, David A & Ogden, Joseph P & Trzcinka, Charles A, 1999. "A New Estimate of Transaction Costs," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1113-1141.
    6. Jack Bao & Jun Pan & Jiang Wang, 2011. "The Illiquidity of Corporate Bonds," Journal of Finance, American Finance Association, vol. 66(3), pages 911-946, June.
    7. Nashikkar, Amrut & Subrahmanyam, Marti G. & Mahanti, Sriketan, 2011. "Liquidity and Arbitrage in the Market for Credit Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(3), pages 627-656, June.
    8. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    9. Dick-Nielsen, Jens & Feldhütter, Peter & Lando, David, 2012. "Corporate bond liquidity before and after the onset of the subprime crisis," Journal of Financial Economics, Elsevier, vol. 103(3), pages 471-492.
    10. Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc.
    11. Crabbe, Leland E & Turner, Christopher M, 1995. "Does the Liquidity of a Debt Issue Increase with Its Size? Evidence from the Corporate Bond and Medium-Term Note Markets," Journal of Finance, American Finance Association, vol. 50(5), pages 1719-1734, December.
    12. Friewald, Nils & Jankowitsch, Rainer & Subrahmanyam, Marti G., 2012. "Illiquidity or credit deterioration: A study of liquidity in the US corporate bond market during financial crises," Journal of Financial Economics, Elsevier, vol. 105(1), pages 18-36.
    13. Raphael Schestag & Philipp Schuster & Marliese Uhrig-Homburg, 2016. "Measuring Liquidity in Bond Markets," Review of Financial Studies, Society for Financial Studies, vol. 29(5), pages 1170-1219.
    14. Amy K. Edwards & Lawrence E. Harris & Michael S. Piwowar, 2007. "Corporate Bond Market Transaction Costs and Transparency," Journal of Finance, American Finance Association, vol. 62(3), pages 1421-1451, June.
    15. Frank de Jong & Joost Driessen, 2012. "Liquidity Risk Premia in Corporate Bond Markets," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-34.
    16. Edith Hotchkiss & Gergana Jostova, 2017. "Determinants of Corporate Bond Trading: A Comprehensive Analysis," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-30, June.
    17. Bank for International Settlements, 2006. "Developing corporate bond markets in Asia," BIS Papers, Bank for International Settlements, number 26.
    18. Peter Feldhütter, 2012. "The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures," Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1155-1206.
    19. Jan Ericsson & Olivier Renault, 2006. "Liquidity and Credit Risk," Journal of Finance, American Finance Association, vol. 61(5), pages 2219-2250, October.
    20. Mahanti, Sriketan & Nashikkar, Amrut & Subrahmanyam, Marti & Chacko, George & Mallik, Gaurav, 2008. "Latent liquidity: A new measure of liquidity, with an application to corporate bonds," Journal of Financial Economics, Elsevier, vol. 88(2), pages 272-298, May.
    21. Helwege, Jean & Huang, Jing-Zhi & Wang, Yuan, 2014. "Liquidity effects in corporate bond spreads," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 105-116.
    22. Alexander, Gordon J. & Edwards, Amy K. & Ferri, Michael G., 2000. "The determinants of trading volume of high-yield corporate bonds," Journal of Financial Markets, Elsevier, vol. 3(2), pages 177-204, May.
    23. Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, February.
    24. Roll, Richard, 1984. "A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
    25. Lin, Hai & Wang, Junbo & Wu, Chunchi, 2011. "Liquidity risk and expected corporate bond returns," Journal of Financial Economics, Elsevier, vol. 99(3), pages 628-650, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Han, Gaofeng & Miao, Hui & Wang, Yabin, 2020. "Liquidity of China’s Government Bond Market: Measures and Driving Forces," MPRA Paper 104545, University Library of Munich, Germany.
    2. Lebelle, Martin & Lajili Jarjir, Souad & Sassi, Syrine, 2022. "The effect of issuance documentation disclosure and readability on liquidity: Evidence from green bonds," Global Finance Journal, Elsevier, vol. 51(C).
    3. Liew, Ping-Xin & Lim, Kian-Ping & Goh, Kim-Leng, 2022. "The dynamics and determinants of liquidity connectedness across financial asset markets," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 341-358.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Helwege, Jean & Wang, Liying, 2021. "Liquidity and price pressure in the corporate bond market: evidence from mega-bonds," Journal of Financial Intermediation, Elsevier, vol. 48(C).
    2. Díaz, Antonio & Escribano, Ana, 2020. "Measuring the multi-faceted dimension of liquidity in financial markets: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    3. Xuanjuan Chen & Jing-Zhi Huang & Zhenzhen Sun & Tong Yao & Tong Yu, 2020. "Liquidity Premium in the Eye of the Beholder: An Analysis of the Clientele Effect in the Corporate Bond Market," Management Science, INFORMS, vol. 66(2), pages 932-957, February.
    4. Song Han & Hao Zhou, 2016. "Effects of Liquidity on the Non-Default Component of Corporate Yield Spreads: Evidence from Intraday Transactions Data," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-49, September.
    5. Goldstein, Michael A. & Namin, Elmira Shekari, 2023. "Corporate bond liquidity and yield spreads: A review," Research in International Business and Finance, Elsevier, vol. 65(C).
    6. Díaz, Antonio & Escribano, Ana, 2022. "Liquidity dimensions in the U.S. corporate bond market," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1163-1179.
    7. Helwege, Jean & Huang, Jing-Zhi & Wang, Yuan, 2014. "Liquidity effects in corporate bond spreads," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 105-116.
    8. Stephanie Heck, 2022. "Corporate bond yields and returns: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 179-201, June.
    9. Friewald, Nils & Jankowitsch, Rainer & Subrahmanyam, Marti G., 2012. "Illiquidity or credit deterioration: A study of liquidity in the US corporate bond market during financial crises," Journal of Financial Economics, Elsevier, vol. 105(1), pages 18-36.
    10. Loon, Yee Cheng & Zhong, Zhaodong Ken, 2014. "The impact of central clearing on counterparty risk, liquidity, and trading: Evidence from the credit default swap market," Journal of Financial Economics, Elsevier, vol. 112(1), pages 91-115.
    11. Adrian, Tobias & Boyarchenko, Nina & Shachar, Or, 2017. "Dealer balance sheets and bond liquidity provision," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 92-109.
    12. Dick-Nielsen, Jens & Feldhütter, Peter & Lando, David, 2012. "Corporate bond liquidity before and after the onset of the subprime crisis," Journal of Financial Economics, Elsevier, vol. 103(3), pages 471-492.
    13. Loon, Yee Cheng & Zhong, Zhaodong (Ken), 2016. "Does Dodd-Frank affect OTC transaction costs and liquidity? Evidence from real-time CDS trade reports," Journal of Financial Economics, Elsevier, vol. 119(3), pages 645-672.
    14. Markus Herrmann & Martin Hibbeln, 2023. "Trading and liquidity in the catastrophe bond market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(2), pages 283-328, June.
    15. Reichenbacher, Michael & Schuster, Philipp, 2022. "Size-adapted bond liquidity measures and their asset pricing implications," Journal of Financial Economics, Elsevier, vol. 146(2), pages 425-443.
    16. Díaz, Antonio & Escribano, Ana, 2017. "Liquidity measures throughout the lifetime of the U.S. Treasury bond," Journal of Financial Markets, Elsevier, vol. 33(C), pages 42-74.
    17. Goldstein, Michael A. & Hotchkiss, Edith S., 2020. "Providing liquidity in an illiquid market: Dealer behavior in US corporate bonds," Journal of Financial Economics, Elsevier, vol. 135(1), pages 16-40.
    18. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1289-1361, Elsevier.
    19. Anténor-Habazac, Cassandre & Dionne, Georges & Guesmi, Sahar, 2018. "Cyclical variations in liquidity risk of corporate bonds," Working Papers 18-3, HEC Montreal, Canada Research Chair in Risk Management.
    20. Friewald, Nils & Jankowitsch, Rainer & Subrahmanyam, Marti G., 2014. "To disclose or not to disclose: Transparency and liquidity in the structured product market," CFS Working Paper Series 461, Center for Financial Studies (CFS).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:bisbpc:102-07. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Beslmeisl (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.