Price discovery and volatility spillovers in the interest rate derivatives market

The interest rate derivatives market is an important force in promoting the development of the bond market and is an effective tool to manage interest rate risk. The research on price discovery and volatility spillover of the market can help provide valuable reference information for investors. Base...

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Bibliographic Details
Published in:Humanities & social sciences communications 2024-12, Vol.11 (1), p.360-14, Article 360
Main Authors: Chen, Congxiao, Chen, Wenya, Shang, Li, Wang, Haiqiao, Tang, Decai, Lansana, David D.
Format: Article
Language:English
Subjects:
Bond markets
Causality
Derivatives
Efficiency
Futures market
Government bonds
Hypotheses
Interest rate swaps
Investments
Investors
Literature reviews
Securities markets
Stock exchanges
Treasuries
Volatility
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Summary:The interest rate derivatives market is an important force in promoting the development of the bond market and is an effective tool to manage interest rate risk. The research on price discovery and volatility spillover of the market can help provide valuable reference information for investors. Based on treasury bond futures and interest rate swaps, the paper aims to discuss the price discovery function and spillover structure of the interest rate derivatives market. The paper establishes the information share model and spillover index model for empirical analysis. The results show that: First, the calculation results of the information share model show that the price discovery of treasury bond futures and interest rate swap markets is stronger than that of the spot market. Second, based on structural break analysis, treasury bond futures and interest rate swaps do not have breakpoints, while the treasury bond spot has three breakpoints. The paper divides the entire sample into four stages based on structural breakpoints and finds that the price discovery ability of the interest rate derivative market dynamically changed. Third, as a net spillover in the market, treasury bond futures have developed relatively stable. Both treasury bond futures and interest rate swaps have spillover effects on the spot market, indicating that China’s interest rate derivatives market can impact the treasury bond spot market.
ISSN:2662-9992
2662-9992
DOI:10.1057/s41599-024-02788-x