Exploring Determinant Factors of Bond Trading with Inventory Management Theory (Case Study of Indonesian Capital Market, January – March 2009)

Wahyudi, Imam and Robbi, Abdu (2009): Exploring Determinant Factors of Bond Trading with Inventory Management Theory (Case Study of Indonesian Capital Market, January – March 2009). Published in: Indonesian Capital Market Review , Vol. 2, No. II (July 2010): pp. 87-108.

Abstract

This paper studies trading volume of 206 recorded and publicly traded bonds in Indonesian Capital Market on January 4th – March 9th 2009 observed period. The data covers almost all trading data in the market and all brokers that exist. The microstructure data used in this study is a complete understanding for almost every phenomenons in the market, and thus could explain more about bond liquidity. We find that some bonds are actively traded and most are rare. We also construct some determinant facto tests of bond trading volume, included descriptive statistic, GLS, and other formal test. We find that bonds with larger par value and more seasoned tend to have smaller trading volume. We also find that private bonds are actively traded more than public bonds (both government institution and private institution bond). Interest rate risk and bond price volatility are positively influence bond trading volume, but opposite for bond rating. We find that bond with higher probability to default have smaller trading volume. While comparing the bond volume data with stock price data, we find that the relationship in two markets is not linier as the convenient theory in finance said.

• Item Type: MPRA Paper
• Language: English
• Keywords: bond trading volume, liquidity, information transparency, substitution effect, private stock, default risk
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C41 - Duration Analysis ; Optimal Timing Strategies; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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