Bridging markets: The impact of bond connect policy on liquidity in China’s bond market

IF 4 3区经济学 Q2 BUSINESS, FINANCE

Journal of Multinational Financial Management Pub Date : 2026-03-01 Epub Date: 2026-02-24 DOI:10.1016/j.mulfin.2026.100949

Haijian Zeng , Zhengge Song , Jingjing Tang , Ling Lin

引用次数: 0

Abstract

This paper examines whether and how capital market liberalization affects bond market liquidity in China. Using a quasi-natural experiment provided by the 2017 launch of Bond Connect and bond-level data from China’s interbank and exchange markets, we find that foreign investor entry significantly improves liquidity, as reflected in a pronounced decline in effective bid-ask spreads. Mechanism analyses indicate that these liquidity gains operate through lower inventory costs, reduced adverse selection costs, and diminished order-processing costs. The main results are robust to alternative liquidity measures and additional controls for return and price volatility. Our findings contribute to a better understanding of the economic consequences of China’s bond market internationalization and offer policy implications for other emerging markets.

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桥接市场：债券通政策对中国债券市场流动性的影响

本文考察了资本市场自由化是否以及如何影响中国债券市场的流动性。利用2017年启动的债券通提供的准自然实验和来自中国银行间和交易所市场的债券水平数据，我们发现外国投资者的进入显著改善了流动性，这反映在有效买卖价差的显著下降上。机制分析表明，这些流动性收益是通过降低库存成本、减少逆向选择成本和减少订单处理成本来实现的。主要结果是稳健的替代流动性措施和额外的控制回报和价格波动。我们的研究结果有助于更好地理解中国债券市场国际化的经济后果，并为其他新兴市场提供政策启示。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Journal of Multinational Financial Management BUSINESS, FINANCE-

CiteScore

7.30

自引率

4.80%

发文量

审稿时长

30 days

期刊介绍： International trade, financing and investments have grown at an extremely rapid pace in recent years, and the operations of corporations have become increasingly multinationalized. Corporate executives buying and selling goods and services, and making financing and investment decisions across national boundaries, have developed policies and procedures for managing cash flows denominated in foreign currencies. These policies and procedures, and the related managerial actions of executives, change as new relevant information becomes available. The purpose of the Journal of Multinational Financial Management is to publish rigorous, original articles dealing with the management of the multinational enterprise. Theoretical, conceptual, and empirical papers providing meaningful insights into the subject areas will be considered. The following topic areas, although not exhaustive, are representative of the coverage in this Journal. • Foreign exchange risk management • International capital budgeting • Forecasting exchange rates • Foreign direct investment • Hedging strategies • Cost of capital • Managing transaction exposure • Political risk assessment • International working capital management • International financial planning • International tax management • International diversification • Transfer pricing strategies • International liability management • International mergers.