Statistics and Its Interface

Volume 2 (2009)

Number 1

The role of asymmetry: Evidence from Chinese Treasury bond market

Pages: 57 – 69

DOI: http://dx.doi.org/10.4310/SII.2009.v2.n1.a6

Authors

Dijun Tan (School of Management and Economics of UESTC, Chengdu, China)

Yixiang Tian (School of Management and Economics of UESTC, Chengdu, China)

Abstract

Volatility asymmetry widely exists in the stock and exchange market, but little evidence has been provided in the bond market, especially the Treasury bond market with fewer impacts related to private information. This paper provides an empirical study on the volatility asymmetry in the Chinese Treasury bond market (CTBM). The question what we are mostly interested is the role of asymmetry in volatility modeling in the Treasury bond market, including econometric testing of asymmetry and analyzing of its effect on volatility forecasting. Quite different from previous results in the stock or exchange market, by estimating varied volatility models, empirical results in this paper show that volatility asymmetry is insignificant in CTBM, but it also provides important and indispensable information for volatility forecasting. Due to the special pricing way of Treasury bonds as well as low liquidity in CTBM as a result of non-actively trading, the fact that information-based impacts in CTBM are not as common as that in the stock or exchange market may contribute to these results.

Keywords

asymmetry, Chinese treasury bond market, high frequency data, realized volatility, volatility forecasting

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