Hedging effectiveness of Chinese Treasury bond futures: New evidence based on nonlinear analysis

Ruan, Qingsong; Zhou, Mi; Luo, Yin; Lv, Dayong

doi:10.1016/j.physa.2020.125553

Cited by 9 publications

(5 citation statements)

References 60 publications

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“…More recently, the MF-DCCA method has become widely used for earthquake [32] and hydrology [33] studies, especially in relation to financial markets [34,35]. Zhang et al ( 2018) [36] and Xiong et al (2019) [37] introduced the MF-DCCA method to study the Chinese stock market.…”

Section: Competing Interests: No Authors Have Competing Interestsmentioning

confidence: 99%

Nonlinear relationship between money market rate and stock market liquidity in China: A multifractal analysis

Sun

Yuan

2021

PLoS ONE

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This paper employs the multifractal detrended cross-correlation analysis (MF-DCCA) model to estimate the nonlinear relationship between the money market rate and stock market liquidity in China from a multifractal perspective, leading to a better understanding of the complexity in the relationship between the interest rate and stock market liquidity. The empirical results show that the cross-correlations between the money market rate and stock market liquidity present antipersistence in the long run and that they tend to be positively persistent in the short run. The negative cross-correlations between the interest rate and stock market liquidity are more significant than the positive cross-correlations. Furthermore, the cross-correlations between the money market rate and stock market liquidity display multifractal characteristics, explaining the variations in the relationship between the interest rate and stock market liquidity at different time scales. In addition, the lower degree of multifractality in the cross-correlations between the money market rate and stock market liquidity confirms that it is effective for the interest rate to control stock market liquidity. The Chinese stock market liquidity is more sensitive to fluctuations in the money market rate in the short term and is inelastic in response to the money market rate in the long term. In particular, the positive cross-correlations between the money market rate and stock market liquidity in the short run become strong in periods of crises and emergencies. All the evidence proves that the interest rate policy is an emergency response rather than an effective response to mounting concerns regarding the economic impact of unexpected exogenous emergencies and that the interest rate cut policy will not be as effective as expected.

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Section: Competing Interests: No Authors Have Competing Interestsmentioning

confidence: 99%

Nonlinear relationship between money market rate and stock market liquidity in China: A multifractal analysis

Sun

Yuan

2021

PLoS ONE

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“…18 years later, the China Financial Futures Exchange (CFFEX) relaunched 5-year treasury bond futures in September 2013, followed by 10-year and 2year treasury bond futures in 2015 and 2018 accordingly. The essential features of treasury futures such as price discovery and hedging risks were spotted in the Chinese market by Tang et al (2018) and Ruan et al (2021) [1,2]. According to the 2022 Annual Report on Chinese Treasury Bond Futures authored by Cao et al (2023), the ratio of average daily trading volume to open interest for Chinese treasury bond futures was 0.45, which increased by 0.03 compared to 2021, placing it on par with the level of developed markets such as the United States and Germany [3].…”

Section: Introductionmentioning

confidence: 99%

Modeling Historical Volatility of 10-year Chinese Treasury Bond Futures: A Comparative Analysis of MLE and MCMC Approaches

Zhao

2024

HSET

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Chinese treasury bond futures are gaining significance in the market. Volatility is an important metric for measuring the fluctuations in asset prices. This paper provides historical volatility modeling for 10-year Chinese treasury bond futures through the Student-t distribution GARCH (1,1) model. The data encompasses the entire historical daily prices, which are used for calculating logarithmic returns. Before modeling, plots and hypothesis tests such as Augmented Dickey-Fuller testing and Lagrange Multiplier testing, are performed to assess the underlying assumptions. In pursuit of better outcomes, a comparative analysis is conducted on parameter estimation, by using both the Maximum Likelihood Estimator (MLE) and Markov Chain Monte Carlo (MCMC) with the Metropolis-Hasting algorithm. The results are performed by “fGarch” and “bayesGARCH” packages in RStudio. Two methods give different estimates, but both accurately fit the dataset. The forecast errors show the MLE is better. However, a generalizable conclusion remains elusive, primarily due to disparities in data sources, model configurations, and the default settings in R packages.

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“…It is also well recognized that the government bonds of big economies (i.e. US, China, UK and Japan) serve as safe havens (Hartmann et al, 2004;Baur and Lucey, 2009;Chan et al, 2011;Ruan et al, 2021;Brunnermeier et al, 2020;Gupta et al, 2021), and these bonds are considered as secured due to the availability of huge revenues in big four economies. The investment-grade corporate bonds also provide a high risk-adjusted return (Bolognesi et al, 2014;Liu, 2016;DeCosta et al, 2017), especially during different financial crises.…”

Section: Introductionmentioning

confidence: 99%

Infectious disease (COVID-19)-related uncertainty and the safe-haven features of bonds markets

Ali

Yousaf

Umar

2022

RBF

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Purpose This study aims to examine the hedge, diversifier and safe-haven properties of bonds against infectious disease-related equity market volatility (IDEMV), like COVID-19.Design/methodology/approach The authors apply wavelet coherence methodology on the daily data of IDEMV and bond market (US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and Europe) indices from 1 January 2000 to 14 February 2021.Findings The results show no significant co-movement between these bond indices and IDEMV, thus confirming that they serve as a hedge against IDEMV. However, during the turbulent period like COVID-19, the authors find that the US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and European bond markets act as safe-haven against IDEMV, whereas the UK, US, Japan and Canadian bond markets demonstrate an in-phase and positive co-movement with IDEMV during COVID-19, suggesting their role as a diversifier.Research limitations/implications The study findings are important for investors and portfolio managers regarding risk management, portfolio diversification and investment strategies.Originality/value The authors contribute to the fast growing body of work on the financial impacts of COVID-19 as well as to ongoing consideration of whether a bond is a safe-haven investment.

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Hedging effectiveness of Chinese Treasury bond futures: New evidence based on nonlinear analysis

Cited by 9 publications

References 60 publications

Nonlinear relationship between money market rate and stock market liquidity in China: A multifractal analysis

Nonlinear relationship between money market rate and stock market liquidity in China: A multifractal analysis

Modeling Historical Volatility of 10-year Chinese Treasury Bond Futures: A Comparative Analysis of MLE and MCMC Approaches

Infectious disease (COVID-19)-related uncertainty and the safe-haven features of bonds markets

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