Do Liquidity Enhancement Auctions Improve the Market Liquidity in the JGB Market?

19 Pages Posted: 9 Feb 2019

Date Written: January 29, 2019

Abstract

This paper firstly analyzes the Liquidity Enhancement Auction, which is a unique auction implemented in the Japanese Government Bond (JGB) markets. To improve the market liquidity in the JGB market, the Ministry of Finance, Japan (MOF) uses this auction to issue additional older bonds that lack liquidity. Our results show that this auction significantly improves the liquidity measure when the MOF uses this auction to supply older bonds. Moreover, we empirically show that this auction provides a persistent effect on the market liquidity. Our paper suggests that this unique auction could be an additional tool for non-Japanese governments to compliment the market liquidity.

Keywords: Liquidity, Japanese Government Bond, Liquidity Enhancement Auction

JEL Classification: D44, E43, G12, G18, H63

Suggested Citation

Hattori, Takahiro, Do Liquidity Enhancement Auctions Improve the Market Liquidity in the JGB Market? (January 29, 2019). Available at SSRN: https://ssrn.com/abstract=3324928 or http://dx.doi.org/10.2139/ssrn.3324928

Takahiro Hattori (Contact Author)

Ministry of Finance - Japan ( email )

3-1-1 Kasumigaseki
Chiyoda-ku
Tokyo, 100-8940
Japan

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