What Are the next Steps for Bond Market Development in Thailand?

Recently East Asian policymakers have focused on facilitating corporate bond market development through a host of financial market reforms including greater foreign participation in the domestic markets as issuers and investors. However, the alternate approach – the encouragement of domestic issuers to further tap international markets – remains largely ignored. The objective of this study is to investigate these issues in the context of reform undertaken by Thailand following the Asian Crisis of 1997. As a small and open economy, Thailand was forced to become more receptive to foreign investment and capital market participation. We raise the significance of bond return volatility and skewness as an impediment to greater involvement by international investors. Empirical analysis highlights the time-varying nature of both variance and skewness of bond returns, which can only be overcome through government policy that focuses upon stabilizing the macroeconomic environment and not simply enhancing domestic and regional financial market infrastructure. Asia-Pacific Financial Markets: Integration, Innovation and Challenges International Finance Review, Volume 8, 497–519 Copyright r 2008 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1569-3767/doi:10.1016/S1569-3767(07)00023-4