MEASURING LIQUIDITY IN THE GREEK GOVERNMENT SECURITIES MARKET
Thanasis N. Christodoulopoulos
Bank of Greece, Financial Operations Department
Ioulia Grigoratou
Bank of Greece, Financial Operations Department
ABSTRACT
Liquidity in government securities markets, despite their importance to both private and public agents, has received much attention in the literature only recently due to the fact that high-frequency data from trading in those markets were previously unavailable. This paper attempts to measure liquidity in the Electronic Secondary Market for Securities, where Greek government securities are traded, by estimating six different liquidity measures from high-frequency data. The most appropriate measures for this specific market are derived from the analysis and comparison of the obtained estimates. By any of the measures examined, the ten-year benchmark bond is the most liquid security. The bid-ask spread emerges as a good measure of liquidity for the pre euro area entry period, but looses part of its importance in the post euro area entry period of our sample. An interesting finding is that, in the Electronic Secondary Market for Securities, liquidity is only weakly related to price volatility, probably due to the specific structure of the government securities market in Greece. Therefore, trading activity is also found to be a good proxy of liquidity in this specific market.
Keywords: Greek bond market, market microstructure, liquidity, order flow.
JEL classification: G10, D40, C40
The authors wish to thank Heather Gibson from the Bank of Greece and Dimitrios Karampatos from the BIS for their helpful comments. We are also grateful to Nikos Alexopoulos for authorising data acquisition and to Stella Papadatou for making those data eventually available. We should also thank our colleague Sotiria Skaltsa for providing assistance with the market’s institutional framework and Athanasios Dardaganis for readily offering us his IT expertise with data compilation. The views expressed are those of the authors and do not necessarily reflect the position of the Bank of Greece.
Th. Christodoulopoulos,
Financial Operations Department,
Bank of Greece, 21 E. Venizelos Avenue,
GR-10250, Athens, Greece,
Tel. +302103202482
E-mail: tchristodoulopoulos@bankofgreece.gr