The Correlation And Volatility Of Various Parts Of The Bond Market

In recent years, China bond markets become more and more important as trading volume and participants increases. In financial markets, bond markets and equity markets have been becoming gradually equal importance. Investors are concerned about the risks of the bond market, so it is necessary to study the volatility of bond. Because of China’s bond market is divided into several parts, in the same macro-economic environment, each of the bond market is facing the same information theoretically. In terms of the information reaction, the various bond markets should be highly correlated. However, due to various parts of China’s bond market has different investors and different transaction size, so this gives us a platform to study whether the information reaction of the various bond markets are full, whether the price is changing synchronously, whether each market’s speed of information response is the same, whether one market is leading another market. Such studies are important to investors and also very important for the theory, but r elated research is less, so this paper firstly focus on the study of each bond market’s volatility, and then study China’s bond market and then use the sub-market correlation analysis determine the circumstances of each sub-market reaction to information, to provide investment advice to investors. And the following conclusions:Firstly, this paper use GARCH model to fit the volatility of bond’s index return, and the empirical results show that the inter-bank Treasury bond market is riskier than the exchange Treasury bond market as well as the inter-bank financial bond market is riskier than exchange corporate bond market. Since GARCH model fitting result is dynamic, reflecting time varying phenomenon, as time progresses, the volatility of inter-bank Treasury bond market, exchange Treasury bond market and inter-bank financial bond market becomes larger, while the volatility of the exchange corporate bond market becomes significantly smaller.Secondly, the paper also use different methods such as the vector auto-regression model, Granger causality analysis, impulse response analysis and variance decomposition analysis to analyze the correlation of various parts of the bond market and then determine each bond market’s information reaction circumstances. The empirical results indicate that the inter-bank bond market’s information reaction is faster and exchange bond market has lag.