Government Regulation,Liquidity and Trading Returns:Effects and Mechanisms
Fully understanding the complexity of the impact of government regulation is a prerequisite for reasonable regulation.This article takes the pricing restrictions on the issuance of local government bonds in August 2018 in China as a quasi-natural experiment to study the impact of government regulations on secondary market transactions.By comparing and analyzing the differentiated reactions of bonds issued by different financial entities,it further verifies the mechanism of govern-ment regulation.The research findings are as follows.Firstly,government regulation has effectively corrected the pricing distortion of local government bonds.The secondary market trading yield of bonds issued by high financial local governments with greater distor-tion has significantly increased,while there has been no significant change in bonds issued by low financial local governments.That is,high financial local government bonds can better play their price discovery and risk identification functions after being regulated.Secondly,government regulations have significantly improved the liquidity of bonds issued by high financial local governments,and have an impact on transaction returns through liquidity.This article further verifies the linkage between the primary and secondary bond markets.Thirdly,issue pricing restrictions affect the transaction yield of the secondary market of bonds through the"government regulation-issue price-transaction yield"direct impact path and the"government regula-tion-issue price-liquidity-transaction yield"indirect impact path,and mainly affect the transaction yield of the second-ary market through the indirect path.In order to improve China's bond market,this paper puts forward three suggestions.Firstly,establish a financial system based on the market and supplemented by government regulation.Secondly,enrich trading entities and improve trading liquid-ity.Thirdly,promote the interconnection and interoperability of various infrastructure in the bond market.
Government RegulationsBond MarketGovernment Financial CapacityTransactions YieldLiquidity
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