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Modeling the dynamics of Chinese spot interest rates

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  • Hong, Yongmiao
  • Lin, Hai
  • Wang, Shouyang
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    Abstract

    Using the daily data of Chinese 7-day repo rates from January 1, 1997 to December 31, 2008, this paper tests a variety of popular spot rate models, including single-factor diffusion, GARCH, Markov regime-switching and jump-diffusion models. We document that Chinese spot rates are subject to both market forces and administrative forces. GARCH, regime-switching and jump-diffusion models capture some important features of the dynamics of Chinese spot rates, but all models under study are overwhelmingly rejected. We further explore possible sources of model misspecification using diagnostic tests.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 5 (May)
    Pages: 1047-1061

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:5:p:1047-1061

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Spot rate models Term structure of interest rates Market segmentation Nonparametric specification tests;

    References

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    Cited by:
    1. Ka-Fai Li & Cho-Hoi Hui & Tsz-Kin Chung, 2012. "Determinants and Dynamics of Price Disparity in Onshore and Offshore Renminbi Forward Exchange Rate Markets," Working Papers 242012, Hong Kong Institute for Monetary Research.
    2. Loechel, Horst & Packham, Natalie & Walisch, Fabian, 2013. "Determinants of the onshore and offshore Chinese Government yield curves," Frankfurt School - Working Paper Series 202, Frankfurt School of Finance and Management.
    3. Nowman, Khalid Ben, 2010. "Modelling the UK and Euro yield curves using the Generalized Vasicek model: Empirical results from panel data for one and two factor models," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 334-341, December.

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