IDEAS home Printed from https://ideas.repec.org/a/taf/rjapxx/v7y2002i3p335-354.html
   My bibliography  Save this article

Expectations and Liquidity in Yen Bond Markets

Author

Listed:
  • Seppo Pynnönen
  • Warren Hogan
  • Jonathan Batten

Abstract

The relationship between daily yields on Japanese government bonds (JGBs), and high grade (AA and AAA) yen eurobonds is investigated. We find the cointegration vector differs slightly from the expected order predicted by the expectations hypothesis and attribute this to differing degrees of liquidity in the eurobond and JGB markets. We conclude that the concentration of new Japanese government issues in maturities of five to ten years, combined with the practice by the authorities of holding a significant amount of outstanding bonds, has distorted the transmission process between different risk classes of bonds. An example of the dynamics of the credit spread on the ten-year AA eurobond is provided.

Suggested Citation

  • Seppo Pynnönen & Warren Hogan & Jonathan Batten, 2002. "Expectations and Liquidity in Yen Bond Markets," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(3), pages 335-354.
    • Handle: RePEc:taf:rjapxx:v:7:y:2002:i:3:p:335-354
    DOI: 10.1080/1354786022000007870
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1354786022000007870
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1354786022000007870?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jean Helwege & Christopher M. Turner, 1999. "The Slope of the Credit Yield Curve for Speculative‐Grade Issuers," Journal of Finance, American Finance Association, vol. 54(5), pages 1869-1884, October.
    2. Batten, Jonathan & Hogan, Warren & Pynnonen, Seppo, 2000. "The dynamics of Australian dollar bonds with different credit qualities," International Review of Financial Analysis, Elsevier, vol. 9(4), pages 389-404.
    3. Cuthbertson, Keith & Hayes, Simon & Nitzsche, Dirk, 1998. "Interest Rates in Germany and the UK: Cointegration and Error Correction Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 27-43, January.
    4. Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453, World Scientific Publishing Co. Pte. Ltd..
    5. Carl Bonham, 1990. "Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation," Working Papers 199026, University of Hawaii at Manoa, Department of Economics.
    6. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    7. Longstaff, Francis A & Schwartz, Eduardo S, 1995. "A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
    8. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-126, February.
    9. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    10. Hirotaka Inoue, 1999. "The Structure of Government Securities Markets in G10 Countries: Summary of Questionnaire Results," CGFS Papers chapters, in: Bank for International Settlements (ed.), Market Liquidity: Research Findings and Selected Policy Implications, volume 11, pages 1-22, Bank for International Settlements.
    11. Wallace, Myles S & Warner, John T, 1993. "The Fisher Effect and the Term Structure of Interest Rates: Tests of Cointegration," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 320-324, May.
    12. Georgios P. Kouretas, 1997. "Identifying Linear Restrictions on the Monetary Exchange Rate Model and the Uncovered Interest Parity: Cointegration Evidence from the Canadian-U.S. Dollar," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 875-890, November.
    13. Bremnes, Helge & Gjerde, Oystein & Saettem, Frode, 1997. "A multivariate cointegration analysis of interest rates in the Eurocurrency market," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 767-778, September.
    14. Paul Boothe, 1991. "Interest Parity, Cointegration, and the Term Structure in Canada and the United States," Canadian Journal of Economics, Canadian Economics Association, vol. 24(3), pages 595-603, August.
    15. Bank for International Settlements, 1999. "Market Liquidity: Research Findings and Selected Policy Implications," CGFS Papers, Bank for International Settlements, number 11, december.
    16. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    17. Fung, Hung-Gay & Isberg, Steven C., 1992. "The international transmission of eurodollar and US interest rates: A cointegration analysis," Journal of Banking & Finance, Elsevier, vol. 16(4), pages 757-769, August.
    18. Engsted, Tom & Tanggaard, Carsten, 1994. "Cointegration and the US term structure," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 167-181, January.
    19. Atsushi Miyanoya, 1999. "Price Discovery Functions in Japan's corporate bond market: An Event Study of the Recent Fall 1997 Financial Crisis," CGFS Papers chapters, in: Bank for International Settlements (ed.), Market Liquidity: Research Findings and Selected Policy Implications, volume 11, pages 1-29, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jonathan A Batten & Peter G Szilagyi, 2012. "Comments on Qianying Chen, Andrew Filardo, Dong He and Feng Zhu's paper "The impact of central bank balance sheet policies on the emerging economies"," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 265-284, Bank for International Settlements.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. In, Francis & Batten, Jonathan & Kim, Sangbae, 2003. "What drives the term and risk structure of Japanese bonds?," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(3), pages 518-541.
    2. Charles S. Morris & Robert Neal & Doug Rolph, 1998. "Credit spreads and interest rates : a cointegration approach," Research Working Paper 98-08, Federal Reserve Bank of Kansas City.
    3. Batten, Jonathan & Hogan, Warren & Pynnonen, Seppo, 2000. "The dynamics of Australian dollar bonds with different credit qualities," International Review of Financial Analysis, Elsevier, vol. 9(4), pages 389-404.
    4. Martin T. Bohl & Pierre L. Siklos, 2004. "The Bundesbank's Inflation Policy and Asymmetric Behavior of the German Term Structure," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 495-508, August.
    5. Patel, Ajay & Shoesmith, Gary L., 2004. "Term structure linkages surrounding the Plaza and Louvre accords: Evidence from Euro-rates and long-memory components," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2051-2075, September.
    6. Noor Ghazali & Soo-Wah Low, 2002. "The expectation hypothesis in emerging financial markets: the case of Malaysia," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1147-1156.
    7. Seppo Pynnonen & Warren Hogan & Jonathan Batten, 2006. "Modelling credit spreads on yen Eurobonds within an equilibrium correction framework," Applied Financial Economics, Taylor & Francis Journals, vol. 16(8), pages 583-606.
    8. Krishnan, C. N. V. & Ritchken, P. H. & Thomson, J. B., 2006. "On Credit-Spread Slopes and Predicting Bank Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1545-1574, September.
    9. Thuraisamy, Kannan S. & Gannon, Gerard L. & Batten, Jonathan A., 2008. "The credit spread dynamics of Latin American euro issues in international bond markets," Journal of Multinational Financial Management, Elsevier, vol. 18(4), pages 328-345, October.
    10. Chiang, Thomas C. & Kim, Doseong, 2000. "Short-term eurocurrency rate behavior and specifications of cointegrating processes," International Review of Economics & Finance, Elsevier, vol. 9(2), pages 157-179.
    11. Narayan, Paresh Kumar & Sharma, Susan Sunila & Thuraisamy, Kannan Sivananthan, 2014. "An analysis of price discovery from panel data models of CDS and equity returns," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 167-177.
    12. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
    13. Ron Lange, 1999. "The Expectations Hypothesis for the Longer End of the Term Structure: Some Evidence for Canada," Staff Working Papers 99-20, Bank of Canada.
    14. Zeno Rotondi, 2006. "The Macroeconomy and the Yield Curve: A Review of the Literature with Some New Evidence," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 193-224, November.
    15. Roberto Blanco & Simon Brennan & Ian W Marsh, 2004. "An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps," Bank of England working papers 211, Bank of England.
    16. Georgoutsos, Dimitris A. & Kouretas, Georgios P., 2016. "Interest parity, cointegration, and the term structure: Testing in an integrated framework," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 281-294.
    17. Njindan Iyke, Bernard, 2015. "On The Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment," MPRA Paper 67681, University Library of Munich, Germany.
    18. ngene, Geoffrey & Hassan, Mohammad Kabir, 2012. "Momentum and Nonlinear Price Discovery in Sovereign Credit Risk and Equity Markets of the Organization of Islamic Cooperation (OIC) Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 46(2), pages 101-114.
    19. Bernard Njindan Iyke, 2017. "On the term structure of South African interest rates: cointegration and threshold adjustment," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(4), pages 300-321.
    20. repec:wyi:journl:002109 is not listed on IDEAS
    21. Niklas Wagner & Warren Hogan & Jonathan Batten, 2005. "Interest Rates, Stock Returns and Credit Spreads: Evidence from German Eurobonds," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 34(1), pages 35-50, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:rjapxx:v:7:y:2002:i:3:p:335-354. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rjap .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.