IDEAS home Printed from https://ideas.repec.org/p/bok/wpaper/1114.html
   My bibliography  Save this paper

Limits to Arbitrage in the Swap and Bond Markets: the Case of Korea

Author

Listed:
  • Hail Park

    (Economic Research Institute, The Bank of Korea)

Abstract

This paper empirically investigates the determinants of the deviations from fundamental levels of both the IRS and the CRS rates in Korea from the perspective of limits to arbitrage. This study also analyzes the inter-linkages between the swap and bond markets in Korea. To this end, a rolling VAR model is estimated incorporating the CRS rate, the IRS rate and the KTB rate. It is found that the related risk factors and the demand-supply imbalance are significant determinants of the deviations from fundamental levels of the IRS as well as the CRS rate in Korea. Moreover, the CIP deviation in the CRS market plays a role in explaining the deviation from the fundamental level of the IRS rate. There are contemporaneous links among the CRS rate, the IRS rate and the KTB rate, and a CRS rate shock significantly affects both the IRS and the KTB rates.

Suggested Citation

  • Hail Park, 2011. "Limits to Arbitrage in the Swap and Bond Markets: the Case of Korea," Working Papers 2011-14, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1114
    as

    Download full text from publisher

    File URL: http://www.bok.or.kr/attach/kor/525/2011/05/1305685767065.PDF
    File Function: Working Paper, 2011
    Download Restriction: no
    ---><---

    Citations

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


    Cited by:

    1. Kyoungsoo Yoon, 2013. "FX Funding Risks and Exchange Rate Volatility - Korea's Case," 2013 Meeting Papers 1361, Society for Economic Dynamics.
    2. Mr. Jack J Ree & Mr. Kyoungsoo Yoon & Mr. Hail Park, 2012. "FX Funding Risks and Exchange Rate Volatility–Korea’s Case," IMF Working Papers 2012/268, International Monetary Fund.
    3. Dong He & Robert N McCauley, 2013. "Transmitting Global Liquidity to East Asia: Policy Rates, Bond Yields, Currencies and Dollar Credit," Working Papers 152013, Hong Kong Institute for Monetary Research.

    More about this item

    Keywords

    limits to arbitrage; swap-linked bond transactions;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    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:bok:wpaper:1114. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Economic Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/imbokkr.html .

    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.