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Bond Market Emergence

The Case of Serbia

Jan Hanousek, PO Box 882, Politickch vz 7, 111 21 Prague, Czech Republic. Phone: (+420) 224 005 119, Fax: (+420) 224 211 374. E-mail: jan.hanousek{at}cerge-ei.cz.

Even Koenda

Even Koenda, CERGE-EI, PO Box 882, Politickch vz 7, 111 21 Prague, Czech Republic. Phone: (+420) 224 005 149, Fax: (+420) 224 211 374. E-mail: evzen.kocenda{at}cerge-ei.cz.

Petr Zemík

Petr Zemík, PO Box 882, Politickch vz 7, 111 21 Prague, Czech Republic. Phone: (+420)224 005 154, Fax: (+420) 224 211 374. E-mail: petr.zemcik{at}cerge-ei.cz.

We analyse the emerging Serbian bond market to compare its behaviour to developed markets and to indicate what is behind bond market emergence. As an analytical tool we model the term structure of the bond market. We find that a modified standard model performs rather well in the environment of an emerging market with numerous imperfections and external shocks involved since we obtain a concave yield curve as in developed markets. Further, we show the link of such a structure to macroeconomic developments in terms of responsiveness of interest rates to changes in industrial production and inflation. Finally, the frequency of trading, market liquidity and transparency can be considered as drivers that make the market emerge.

Key Words: Government bonds • term structure • yield curve • macroeconomics fundamentals • emerging market • Serbia • JEL Classification: C53 • JEL Classification: E43 • JEL Classification: E44 • JEL Classification: G15 • JEL Classification: P43

Journal of Emerging Market Finance, Vol. 7, No. 2, 141-168 (2008)
DOI: 10.1177/097265270800700202


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