Authors: S. Utami Puspaputri; Sigit S. Wibowo
Addresses: Department of Management, Faculty of Economics and Business, Universitas Indonesia, Depok, 16424, Indonesia ' Department of Management, Faculty of Economics and Business, Universitas Indonesia, Depok, 16424, Indonesia
Abstract: We examine the relationship between trading activity and price volatility in Indonesia corporate bond market using 2010-2014 data. We also investigate the role of liquidity and credit quality in this relationship. We find that volume and trading frequency have a positive and significant correlation to bond volatility, which is consistent with the information-based model. The results also suggest that liquidity plays an important role in their relationship, in which illiquidity causing stronger relationship between trading volume and price volatility. Credit quality, however, do not have similar effects on volatility where AAA-rated bonds tend to have higher volatility.
Keywords: bond volatility; bond liquidity; corporate bond; emerging market; Indonesia.
International Journal of Bonds and Derivatives, 2017 Vol.3 No.3, pp.204 - 222
Received: 08 Oct 2016
Accepted: 22 Nov 2016
Published online: 11 Dec 2017 *