Advanced Search
MyIDEAS: Login to save this article or follow this journal

Asymmetric dynamics in correlations of treasury and swap markets: Evidence from the US market

Contents:

Author Info

  • Toyoshima, Yuki
  • Tamakoshi, Go
  • Hamori, Shigeyuki

Abstract

Using the asymmetric dynamic conditional correlation (A-DCC) model developed by Cappiello et al. (2006), this paper empirically analyzes the conditional correlation between treasury and swap markets from February 9, 2006 to May 31, 2011, and makes two key contributions. First, the dynamics of the conditional correlation of only the 2-year maturity differs from those of other maturities. These patterns might be explained by the fact that a 2-year maturity is easily affected by market forecasts of monetary policy changes by the Federal Reserve Board. Second, the financial crisis dummies (ξ1) are all negative in particular with significance at the 5% level for 7 year, 10 year, and 30 year maturities. This result indicates that arbitrage transactions between treasuries and swaps have not taken place on a sufficient scale during the financial crisis period. As Ito (2010) points out, market participants have been uncertain about the direction of the monetary policies of these financial institutions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S1042443111000928
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 22 (2012)
Issue (Month): 2 ()
Pages: 381-394

as in new window
Handle: RePEc:eee:intfin:v:22:y:2012:i:2:p:381-394

Contact details of provider:
Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Asymmetric dynamic conditional correlation model; Treasury market; Swap market; Financial crisis; Contagion effect;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Huang, Ying & Chen, Carl R., 2007. "The effect of Fed monetary policy regimes on the US interest rate swap spreads," Review of Financial Economics, Elsevier, vol. 16(4), pages 375-399.
  2. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
  3. C S Savva & D R Osborn & L Gill, 2005. "Spillovers and Correlations between US and Major European Stock Markets: The Role of the Euro," Centre for Growth and Business Cycle Research Discussion Paper Series 64, Economics, The Univeristy of Manchester.
  4. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  5. Chung, Hon-Lun & Chan, Wai-Sum, 2010. "Impact of credit spreads, monetary policy and convergence trading on swap spreads," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 118-126, March.
  6. Duffie, Darrell & Huang, Ming, 1996. " Swap Rates and Credit Quality," Journal of Finance, American Finance Association, vol. 51(3), pages 921-49, July.
  7. Sheng-Yung Yang, 2005. "A DCC analysis of international stock market correlations: the role of Japan on the Asian Four Tigers," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(2), pages 89-93, March.
  8. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
  9. Matthew S. Yiu & Wai-Yip Alex Ho & Lu Jin, 2010. "Dynamic Correlation Analysis of Financial Spillover to Asian and Latin American Markets in Global Financial Turmoil," Working Papers 1001, Hong Kong Monetary Authority.
  10. Kuper, Gerard H. & Lestano, 2007. "Dynamic conditional correlation analysis of financial market interdependence: An application to Thailand and Indonesia," Journal of Asian Economics, Elsevier, vol. 18(4), pages 670-684, August.
  11. Takayasu Ito, 2010. "Global financial crisis and US interest rate swap spreads," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 37-43.
  12. Yuan-Hung Hsu Ku & Jai Jen Wang, 2008. "Estimating portfolio value-at-risk via dynamic conditional correlation MGARCH model - an empirical study on foreign exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 15(7), pages 533-538.
  13. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
  14. Matthew Yiu & Wai-Yip Alex Ho & Daniel Choi, 2010. "Dynamic correlation analysis of financial contagion in Asian markets in global financial turmoil," Applied Financial Economics, Taylor & Francis Journals, vol. 20(4), pages 345-354.
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 in new window

Cited by:
  1. Lu Yang & Shigeyuki Hamori, 2013. "EU Accession, Financial Integration, and Contagion Effects: Dynamic Correlation Analysis of CEEC-3 Bond Markets," Transition Studies Review, Springer, vol. 20(2), pages 179-189, October.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:22:y:2012:i:2:p:381-394. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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