How liquid and efficient are Botswana Bond Markets?

ENGLISH ABSTRACT: The importance of market microstructure in determining the success of a bond market inallocating financial resources depends on the degree to which the microstructure elements likeliquidity, efficiency and volatility have been designed to determine the proper price at whichmatching of demand and supply in an efficient and effective manner is done. This researchproject analyzes some of the fundamental microstructure elements responsible for the current state of the Botswana bond market. The Botswana bond market is still in its infant stage hencethere is little information on trades, which contributes to the liquidity problem. The purpose of the study was to investigate the liquidity and efficiency in Botswana’s bond market. The study also sought to compare the behaviour of the Botswana bond market to those of South Africa andfurther indicate what is behind the bond market emergence. Houweling, Mentink and Vorst‘s(2003) measure was used, in addition to a combination of simple regression and latent models.In the test of efficiency, a static model has been employed.Overall, it is established that the corporate bond market is less efficient and is illiquid.Furthermore, it is revealed that Botswana is still lagging behind South Africa when it comes tothe level of development of the corporate bond market.