The Value of Introducing Structural Reform to Improve Bond Market Liquidity: Experience from the U.K. Gilt Market
European Journal of Finance and Banking Research, Vol. 2, No. 2, 2009
23 Pages Posted: 19 Jan 2010
Date Written: July 15, 2009
Abstract
The importance of maintaining sufficient liquidity in financial markets is emphasised strongly in the academic literature. During the 1990s the United Kingdom monetary authorities introduced a number of structural reforms in the government bond market, aimed at improving secondary market liquidity. In this paper we examine the impact of the reforms by attempting to ascertain if liquidity levels improved in the post-reform period. We estimate the change in liquidity levels through the use of a proxy measure of liquidity, namely the benchmark bond theoretical versus market yield error. We examine the determinants of the proxy measure of market liquidity, and estimate which of the explanatory variables carries the greatest weight in influencing liquidity levels. We identify those factors that contributed most to maintaining secondary market liquidity and thereby draw conclusions of potential value to sovereign bond market monetary authorities.
Keywords: financial markets, bonds, market liquidity, proxy measure
JEL Classification: G11, G12, G32
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Term Structure Estimation from On-the-Run Treasuries
By James V. Jordan and Sattar Mansi
-
Modeling the Term Structure from the On-the-Run Treasury Yield Curve
By Sattar Mansi and Jeffery H. Phillips
-
The Effect of Transaction Size on Off-the-Run Treasury Prices
By David F. Babbel, Craig B. Merrill, ...
-
How Well Do Constant Maturity Treasuries Approximate the On-the-Run Term Structure
By Sattar Mansi and James V. Jordan
-
New Perspectives in Asset-Liability Management for Insurers
By Ako Doffou
-
Yield Curve Smoothing Models of the Term Structure
By Sattar Mansi and George M. Jabbour
-
The Interest Rate Sensitivity of Real Estate
By Alain Chaney and Martin Hoesli
-
A Measure of Liquidity Risk in a Sovereign Debt Market
By Emma Berenguer, Ricardo Gimeno, ...