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The microstructure of China's government bond market

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Listed:
  • Jennie Bai
  • Michael J. Fleming
  • Casidhe Horan

Abstract

Although China now has one of the largest government bond markets in the world, the market has received relatively little attention and analysis. We describe the history and structure of the market and assess its functioning. We find that trading in individual bonds was historically sparse but has increased markedly in recent years. We find also that certain announcements of macroeconomic news, such as China’s producer price index (PPI) and manufacturing purchasing managers’ index (PMI), have significant effects on yields, even when such yields are measured at a daily level. Despite the increased activity in the market, we are able to reject the null hypothesis of market efficiency under two different tests for four of the most actively traded bonds.

Suggested Citation

  • Jennie Bai & Michael J. Fleming & Casidhe Horan, 2013. "The microstructure of China's government bond market," Staff Reports 622, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:622
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    References listed on IDEAS

    as
    1. Wei Xiong & Jialin Yu, 2011. "The Chinese Warrants Bubble," Working Papers 1398, Princeton University, Department of Economics, Econometric Research Program..
    2. Kalok Chan & Albert J. Menkveld & Zhishu Yang, 2008. "Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount," Journal of Finance, American Finance Association, vol. 63(1), pages 159-196, February.
    3. Dong Lou & Hongjun Yan & Jinfan Zhang, 2013. "Anticipated and Repeated Shocks in Liquid Markets," Review of Financial Studies, Society for Financial Studies, pages 1891-1912.
    4. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 523-543, December.
    5. Wei Xiong & Jialin Yu, 2011. "The Chinese Warrants Bubble," American Economic Review, American Economic Association, vol. 101(6), pages 2723-2753, October.
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    Keywords

    Government securities ; Rate of return ; Financial markets ; China;

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