Market Microstructure of Corporate Bond Market in India: An Empirical Analysis

Abstract

A smooth and robust corporate debt market is considered crucial for the development and stability of an economy. A well-developed corporate debt market enables efficient allocation of funds, facilitates infrastructure financing, improves the health of corporate balance sheets and safeguards financial stability by sharing the burden of banking sector in financial system of an economy. In the present paper, we have adopted historical approach of market efficiency to study the corporate bond market in India. The study investigates the difference between BSE and NSE platforms of trading in corporate bond market in India. Also, to study market efficiency of these market, historical approach of market efficiency has been used. This approach is based on the notion that as market matures, it became more efficient. The descriptive analysis and semi-log regression equations have been used on the data-sets. The period of study is 9 years from April, 2007 to March, 2016. The descriptive analysis supported the hypothesis that there is a difference between the two trading platforms of corporate bond market in India. During the period 2007-2016, it has been found that the number of trades at BSE was growing at lower rate but with higher average amount raised per trade than NSE. It shows that BSE has effectively filtered out better quality trades from trades from overall market. However, total amount raised at NSE was higher than BSE, it could be the reckless behaviour of investors or informational inefficiency and needs further investigation. The findings may help policymakers, regulators and participants to take judicious decisions to make trading in corporate bond market more beneficial for all stakeholders.

Keywords: Corporate Bond Market, Market Efficiency, Historical Approach, Indian Financial System

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