FACTORS AFFECTING BOND MARKET EFFICIENCY IN THAILAND

Abstract

The development of bond market toward market efficiency is important because it provides a direct fundraising source for the government and private sector, providing an alternative choice for investors. This paper focuses on factors affecting bond market efficiency in Thailand by analyzing the monthly government bond data from June 2006 to December 2015, during which there was a total issue of 64 bonds series. The evidences as of this study indicate that correct reporting of bond trading information within assigned time periods can increase bond market efficiency. However, bond trading volatility, interest rate policy, and quoted bid-ask spread yield can all negatively affect bond market operational efficiency. Conversely, the net volume of purchases from foreign investors can have a positive effect. If the Thai bond market associations can improve its trading reporting procedure, information and pricing efficiency is likely to ensue. In addition, when the Ministry of Finance issues a benchmark bond series, and the Bank of Thailand issues a policy allowing financial institutions and other entities to carry out the relevant borrowing and lending transactions, the bond market will increase operation efficiency. The authorities responsible for organizing bond market development should, therefore, focus on issuing new regulations or improving existing policies in order to increase bond market efficiency. In particular, the improvement of regulations or policies in terms of reporting bond trading information should be more accurate and responsive. Furthermore, reducing transaction costs, stabilizing bond trading yield, and stimulating foreign investment in the purchase of large quantities of bonds should be paramount.