Short-Selling Restriction, Price Squeeze, and Bond Futures Price Manipulation

Author: Chao Chen

Publisher:

ISBN: OCLC:1290344121

Category:

Page: 41

View: 755

In an emerging futures market with short-selling restrictions on spot contracts, low margin requirements on futures contracts, and weak corporate governance, price squeeze and manipulation may occur. Price manipulators would be able to inflate both spot and futures prices and lead to the instability of the futures and spot markets. The Chinese government bond futures market, the first and the only financial futures ever existed in China, provides an opportunity to investigate the above conjecture. Using a unique data set including all contract series issued and traded between 1993 and 1995, this paper documents evidence of price squeeze and manipulation. Our evidence indicates that prior to the maturity month of government bond futures, price manipulators, taking the advantage of short-selling restrictions in the government bond spot market and very low margin requirements in the government bond futures, accumulate a significant amount of long positions for several selected issues without the intention to offset, which eventually leads to the collapse of the Chinese government bond futures market.
Coupon Effects and the Pricing of Japanese Government Bonds

Author: Young Ho Eom

Publisher:

ISBN: UCLA:L0079815684

Category: Bonds

Page: 31

View: 137

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 significantly affected 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 significant 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 effect 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. Specifically, we use the B-spline method to fit the term structure of interest rates using weekly prices of quot;non-benchmarkquot; ten-year JGB's. We also use a non-linear econometric model to examine the significance of the quot;couponquot; effects, which are the results of regulatory, accounting and liquidity factors.Our empirical analysis shows that it is possible to closely fit the term structure of interest rates in the JGB market, with fitted price errors only slightly larger than those found in similar studies of the U.S. Treasury bond market. Furthermore, the fitted price errors diminish over our sample period, suggesting that the effect 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 effect on the prices due to the quot;par-bondquot; effect and the quot;high-couponquot; effect, although the quot;par-bondquot; effect 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 efficiency 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.
Structural Reforms in Government Bond Markets

Author: Mark de Broeck

Publisher: International Monetary Fund

ISBN: UCSD:31822026225037

Category: Business & Economics

Page: 31

View: 325

The paper documents institutional reforms that have taken place in the government debt markets of many industrial countries since the early 1980s, and investigates the impact of three key changes: (i) the move from relationship financing to market funding; (ii) the introduction of options; and (iii) the introduction of futures. Variance ratio tests on bond data for 14 industrial countries indicate that the move to market funding increased the volatility of bond yields and improved the informational efficiency of the secondary markets. The introduction of options and futures increased the informational efficiency of the underlying market, but did not have a stabilizing effect.
An Empirical Study on the Lead-Lag Relationship Between Five-Year Chinese Government Spot Bonds and Futures Markets

Author: Rong-Yuan Qin

Publisher:

ISBN: OCLC:1305322019

Category:

Page: 19

View: 267

This empirical study examines the short-term dynamic lead-lag relationship between five-year Chinese government bond futures index and its underlying spot index, using daily data from September 06, 2013 to August 31, 2016. We carry out unit root test, Johansen-Juselius cointegration test, Granger causality analysis, impulse response function analysis, and variance decomposition analysis. The empirical results of this paper reveal that five-year Chinese government bond futures and spot level variables are non-stationary time series data with unit root, but the first differences in the logarithm of the prices are stationary. As a result of the cointegration test, it was confirmed that there is no long-term equilibrium relationship between the two level variables (price). Lastly, the results of Granger causality, impulse response functions, and the variance decomposition analysis show that the returns of five-year Chinese government bond futures one-sidedly lead the underlying spot returns. This means that the five-year government bond futures market is more efficient in China. Also, these results are consistent with the results of previous studies, and are expected to be useful for traders, regulatory bodies and practitioners for several reasons, such as price discovery, hedging and arbitrage opportunities.
Modern Multi-Factor Analysis of Bond Portfolios

Author: Giovanni Barone-Adesi

Publisher: Springer

ISBN: 9781137564863

Category: Business & Economics

Page: 124

View: 399

Where institutions and individuals averagely invest the majority of their assets in money-market and fixed-income instruments, interest rate risk management could be seen as the single most important global financial issue. However, the majority of the key techniques used by most investors were developed several decades ago, and the advantages of multi-factor models are not fully recognised by many researchers and practitioners. This book provides clear and practical insight into bond portfolios and portfolio management through key empirical analysis. The authors use extensive sets of empirical data to describe the value potentially added by more recent techniques to manage interest rate risk relative to traditional techniques and to present empirical evidence of such an added value. Beginning with a description of the simplest models and moving on to the most complex, the authors offer key recommendations for the future of rate risk management.
Structural Reforms in Government Bond Markets

Author: International Monetary Fund

Publisher: International Monetary Fund

ISBN: 9781451853070

Category: Business & Economics

Page: 31

View: 994

The paper documents institutional reforms that have taken place in the government debt markets of many industrial countries since the early 1980s, and investigates the impact of three key changes: (i) the move from relationship financing to market funding; (ii) the introduction of options; and (iii) the introduction of futures. Variance ratio tests on bond data for 14 industrial countries indicate that the move to market funding increased the volatility of bond yields and improved the informational efficiency of the secondary markets. The introduction of options and futures increased the informational efficiency of the underlying market, but did not have a stabilizing effect.