Liquidity in an emerging bond market: the case of corporate bonds in Malaysia

June 2008

Abstract

Most of what is known about the functioning of corporate bond markets is based on studies of large developed markets. Using a previously unexploited dataset, we examine the evolution of trading activity and costs in a small emerging bond market, that of Malaysia. Our results indicate that the drivers of liquidity in the Malaysian market are similar to those in larger markets. Bid-ask spreads and turnover ratios confirm that liquidity improved between 1998 and 2004 but show little change thereafter, suggesting that the importance of fragmentation as an impediment to liquidity increases as the market develops.