Modeling the Term Structure of Interest Rate in Japan

Kikugawa, Tadashi; Singleton, Kenneth J.

doi:10.3905/jfi.1994.408111

Cited by 11 publications

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“…16. Kikugawa and Singleton (1994) caution that coupon effects have significant influence when applying the standard expectations theory to JGB data.…”

Section: The Term Structure Of Interest Rates and Monetary Policy Durmentioning

confidence: 99%

The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period

Nagayasu

2003

IMF Working Papers

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“…16. Kikugawa and Singleton (1994) caution that coupon effects have significant influence when applying the standard expectations theory to JGB data.…”

Section: The Term Structure Of Interest Rates and Monetary Policy Durmentioning

confidence: 99%

The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period

Nagayasu

2003

IMF Working Papers

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“…Singleton (1990), for example, examines time series models of both the means and variances of long-and short-term bond yields in Japan, placing primary emphasis on the relations between the volatilities of long-and short-term rates. Kikugawa and Singleton (1994) further parameterize an adjustment factor as a function to capture the coupon and par effects, and use cubic splines to approximate the discount function. 18 To date, Japanese financial markets have been closely integrated with the global markets.…”

Section: Estimation Of Futures Prices and Quality Options Valuesmentioning

confidence: 99%

Terms Structure of Interest Rates and Implicit Options: The Case of Japanese Bond Futures

Yu¹

1997

Business Fin & Account

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“…2 These features are attributable to market frictions such as taxes, and transactions costs (including the costs of establishing a short position), as well as regulatory restrictions on the …nancial institutions that are major participants in the JGB market, all of which reduce the general e¢ ciency of the market. For example, Kikugawa and Singleton (1994) use data for the period from 1990 through 1992 to conclude that there are substantial coupon e¤ects in the JGB market. They suggest that the term structure models that have been widely applied to other Treasury markets, such as the U.S. and the U.K., should be used with care in the JGB market, in view of various institutional considerations.…”

Section: Introductionmentioning

confidence: 99%

“…Examples of these studies include Singleton (1994) and Kikugawa and Singleton (1994), who …t the JGB yield curve from 1990 to 1992 and …nd that there are substantial coupon and par e¤ects on bond yields.…”

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Coupon Effects and the Pricing of Japanese Government Bonds An Empirical Analysis

1998

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Abstract:In many markets, the term structure of interest rates implied by coupon Treasury bonds provides a key input for pricing and hedging interest rate-sensitive securities. Previous studies in the Japanese market, however, suggest that the prices of the Japanese Government Bonds (JGB's) were signi…cantly a¤ected by regulatory and liquidity factors. Consequently, it has been argued that term structure modelling in the Japanese context based on interest rate factors could lead to misleading results. Since the previous studies, there have been signi…cant structural changes in the regulatory environment, and in the liquidity of the Japanese bond market in the 1990's. In this light, we examine the e¤ect of these changes on the JGB prices during the period between 1990 and 1996, by analyzing the term structure of interest rates in the JGB market over time. Speci…cally, we use the B-spline method to …t the term structure of interest rates using weekly prices of "non-benchmark" ten-year JGB's. We also use a non-linear econometric model to examine the signi…cance of the "coupon" e¤ects, which are the results of regulatory, accounting and liquidity factors.Our empirical analysis shows that it is possible to closely …t the term structure of interest rates in the JGB market, with …tted price errors only slightly larger than those found in similar studies of the U.S. Treasury bond market. Furthermore, the …tted price errors diminish over our sample period, suggesting that the e¤ect of non-present value factors became somewhat muted over time. Our empirical results also indicate that the coupon of a bond in the JGB market has a highly nonlinear e¤ect on the prices due to the "par-bond" e¤ect and the "high-coupon" e¤ect, although the "par-bond" e¤ect is more pronounced in the recent period. Further analysis shows that three factors (level, slope and curvature) explain a substantial proportion of the variation in the JGB spot rates, as in the case of the U.S. Treasury market. Overall, these results indicate that the e¢ ciency of the JGB markets has improved over time. Hence, the time-series movement of the JGB's can be captured to a substantial degree by common interest rate factors, although care should be taken to incorporate the special characteristics of individual bonds.Coupon E¤ects and the Pricing of Japanese Government Bonds

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Modeling the Term Structure of Interest Rate in Japan

Cited by 11 publications

References 0 publications

The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period

The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period

Terms Structure of Interest Rates and Implicit Options: The Case of Japanese Bond Futures

Coupon Effects and the Pricing of Japanese Government Bonds An Empirical Analysis

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