The Determinants of Dim Sum Bond Liquidity
DOI:
https://doi.org/10.14738/abr.811.9342Keywords:
Dim Sum bond; offshore Chinese yuan; liquidity; bid-ask spreadAbstract
In this paper, we offer a comprehensive analysis of the structure of the Dim Sum bond market. We show that Dim Sum bonds usually have a short maturity and that the market is dominated by issuers from the banking sector. In our analysis of the determinants of Dim Sum bond bid-ask spread, we find that both bond-specific determinants (issuance amount, maturity, and collateral), and macroeconomic variables particular to the Dim Sum bond market, influence its liquidity. The narrower Chinese yuan interest rate gap between mainland China and Hong Kong and a growing appreciation of the Chinese yuan, in addition to the fall in the Dim Sum Bond Market Yield Index, have led to improved liquidity in the market.
References
References
Acharya, V., Amihud, Y and S. Bharath (2013). "Liquidity Risk of Corporate Bond Returns: A Conditional Approach." Journal of Financial Economics 110(2): 358-386.
Amihud, Y. and H. Mendelson (1986). "Asset pricing and the bid-ask spread." Journal of Financial Economics 17(2): 223-249.
Amihud, Y. and H. Mendelson (1991). "Liquidity, Maturity, and the Yields on U.S. Treasury Securities." The Journal of Finance 46(4): 1411-1425.
Bao, J., Pan, J. and J. Wang (2011). "The Illiquidity of Corporate Bonds." The Journal of Finance 66(3): 911-946.
Beber, A., Brandt, M and Kavajecz, K. (2009). "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market." Review of Financial Studies 22(3): 925-957.
Boudoukh, J. and R. F. Whitelaw (1993). "Liquidity as a choice variable: a lesson from the Japanese government bond market." Review of Financial Studies 6(2): 265-292.
Brunnermeier, M. K. and L. H. Pedersen (2009). "Market Liquidity and Funding Liquidity." Review of Financial Studies 22(6): 2201-2238.
Chen, T.-K., Liao, H.-H. and P.-L. Tsai (2011) "Internal liquidity risk in corporate bond yield spreads." Journal of Banking & Finance 35(4): 978-987.
Claes, A., De Ceuster, M. and R. Polfliet (2002). “Anatomy of the Eurobond Market 1980-2000.” European Financial Management 8(3): 373-386.
Collin-Dufresne, P., Goldstein, R. and S. Martin (2001). "The Determinants of Credit Spread Changes." The Journal of Finance 56(6): 2177-2207.
Dick-Nielsen, J., Feldhutter, P. and D. Lando "Corporate bond liquidity before and after the onset of the subprime crisis." Journal of Financial Economics 103(3): 471-492.
Elton, E., Gruber, M., Agrawal, D. and C. Mann (2001). "Explaining the Rate Spread on Corporate Bonds." The Journal of Finance 56(1): 247-277.
Fung, H.G., Ko, G. and Yau, J. (2014). “Dim Sum Bonds: The Offshore Renminbi (RMB)-Denominated Bonds”. Wiley.
Fung, H.G., Tzau, D. and Yau, J. (2012) The Chinese Offshore Renminbi-Denominated Bonds: Dim Sum Bonds. Available at SSRN: http://ssrn.com/abstract=2080636
Goldreich, D., Hanke, B. and P. Nath (2005). "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market." Review of Finance 9(1): 1-32.
Hotchkiss, E., Goldstein, A. and E. Sirri (2007). "Transparency and Liquidity: A Controlled Experiment on Corporate Bonds." Review of Financial Studies 20(2): 235-273.
Goyenko, R., Subrahmanyam, A. and A. Ukhov (2011). "The Term Structure of Bond Market Liquidity and Its Implications for Expected Bond Returns." Journal of Financial and Quantitative Analysis 46(01): 111-139.
He, D. and McCauley, R.N., 2010, “Offshore markets for the domestic currency: Monetary and financial stability issues”, BIS Working Paper, No 320.
Hong, G., and Warga, A. (2000). “An Empirical Study of Bond Market Transactions.” Financial Analysts Journal, March/April: 32-46.
Kamara, A. (1994). "Liquidity, Taxes, and Short-Term Treasury Yields." Journal of Financial and Quantitative Analysis 29(03): 403-417.
Krishnamurthy, A. (2002). "The bond/old-bond spread." Journal of Financial Economics 66(2-3): 463-506.
Longstaff, F. A., 2004, “The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices.” The Journal of Business 77(3): 511-526
Maziad, S. and J. Kang (2012). “RMB Internationalization: Onshore/Offshore Links.” IMF Working Paper, No 12/133.
Melnik, A. and D. Nissim (2006). “Issue costs in the Eurobond market: the effects of market integration”. Journal of Banking and Finance 30: 157-177
Minikin, R. and K. Lau (2013). “The Offshore Renminbi: The Rise of the Chinese Currency and Its Global Future”. Wiley, Singapore.
Peristiani, S. and J. Santos (2010). “Has the US bond market lost its edge to the Eurobond market?.” International Review of Finance 10(2): 149-183.
Wang, R.Z. and J. Dou (2012). “The development and the problems of the Hong Kong offshore Chinese yuan bond market.” Shanghai Finance 2012(7): 79-83.
Warga, A. (1992). "Bond Returns, Liquidity, and Missing Data." Journal of Financial and Quantitative Analysis 27(04): 605-617.
Acharya, V., Amihud, Y and S. Bharath (2013). "Liquidity Risk of Corporate Bond Returns: A Conditional Approach." Journal of Financial Economics 110(2): 358-386.
Amihud, Y. and H. Mendelson (1986). "Asset pricing and the bid-ask spread." Journal of Financial Economics 17(2): 223-249.
Amihud, Y. and H. Mendelson (1991). "Liquidity, Maturity, and the Yields on U.S. Treasury Securities." The Journal of Finance 46(4): 1411-1425.
Bao, J., Pan, J. and J. Wang (2011). "The Illiquidity of Corporate Bonds." The Journal of Finance 66(3): 911-946.
Beber, A., Brandt, M and Kavajecz, K. (2009). "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market." Review of Financial Studies 22(3): 925-957.
Boudoukh, J. and R. F. Whitelaw (1993). "Liquidity as a choice variable: a lesson from the Japanese government bond market." Review of Financial Studies 6(2): 265-292.
Brunnermeier, M. K. and L. H. Pedersen (2009). "Market Liquidity and Funding Liquidity." Review of Financial Studies 22(6): 2201-2238.
Chen, T.-K., Liao, H.-H. and P.-L. Tsai (2011) "Internal liquidity risk in corporate bond yield spreads." Journal of Banking & Finance 35(4): 978-987.
Claes, A., De Ceuster, M. and R. Polfliet (2002). “Anatomy of the Eurobond Market 1980-2000.” European Financial Management 8(3): 373-386.
Collin-Dufresne, P., Goldstein, R. and S. Martin (2001). "The Determinants of Credit Spread Changes." The Journal of Finance 56(6): 2177-2207.
Dick-Nielsen, J., Feldhutter, P. and D. Lando "Corporate bond liquidity before and after the onset of the subprime crisis." Journal of Financial Economics 103(3): 471-492.
Elton, E., Gruber, M., Agrawal, D. and C. Mann (2001). "Explaining the Rate Spread on Corporate Bonds." The Journal of Finance 56(1): 247-277.
Fung, H.G., Ko, G. and Yau, J. (2014). “Dim Sum Bonds: The Offshore Renminbi (RMB)-Denominated Bonds”. Wiley.
Fung, H.G., Tzau, D. and Yau, J. (2012) The Chinese Offshore Renminbi-Denominated Bonds: Dim Sum Bonds. Available at SSRN: http://ssrn.com/abstract=2080636
Goldreich, D., Hanke, B. and P. Nath (2005). "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market." Review of Finance 9(1): 1-32.
Hotchkiss, E., Goldstein, A. and E. Sirri (2007). "Transparency and Liquidity: A Controlled Experiment on Corporate Bonds." Review of Financial Studies 20(2): 235-273.
Goyenko, R., Subrahmanyam, A. and A. Ukhov (2011). "The Term Structure of Bond Market Liquidity and Its Implications for Expected Bond Returns." Journal of Financial and Quantitative Analysis 46(01): 111-139.
He, D. and McCauley, R.N., 2010, “Offshore markets for the domestic currency: Monetary and financial stability issues”, BIS Working Paper, No 320.
Hong, G., and Warga, A. (2000). “An Empirical Study of Bond Market Transactions.” Financial Analysts Journal, March/April: 32-46.
Kamara, A. (1994). "Liquidity, Taxes, and Short-Term Treasury Yields." Journal of Financial and Quantitative Analysis 29(03): 403-417.
Krishnamurthy, A. (2002). "The bond/old-bond spread." Journal of Financial Economics 66(2-3): 463-506.
Longstaff, F. A., 2004, “The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices.” The Journal of Business 77(3): 511-526
Maziad, S. and J. Kang (2012). “RMB Internationalization: Onshore/Offshore Links.” IMF Working Paper, No 12/133.
Melnik, A. and D. Nissim (2006). “Issue costs in the Eurobond market: the effects of market integration”. Journal of Banking and Finance 30: 157-177
Minikin, R. and K. Lau (2013). “The Offshore Renminbi: The Rise of the Chinese Currency and Its Global Future”. Wiley, Singapore.
Peristiani, S. and J. Santos (2010). “Has the US bond market lost its edge to the Eurobond market?.” International Review of Finance 10(2): 149-183.
Wang, R.Z. and J. Dou (2012). “The development and the problems of the Hong Kong offshore Chinese yuan bond market.” Shanghai Finance 2012(7): 79-83.
Warga, A. (1992). "Bond Returns, Liquidity, and Missing Data." Journal of Financial and Quantitative Analysis 27(04): 605-617.
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Published
2020-11-27
How to Cite
Delitheou, V., Lei , M., & Verousis, T. . (2020). The Determinants of Dim Sum Bond Liquidity. Archives of Business Research, 8(11), 141–156. https://doi.org/10.14738/abr.811.9342
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