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Long-range correlation and market segmentation in bond market

Author

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  • Wang, Zhongxing
  • Yan, Yan
  • Chen, Xiaosong

Abstract

This paper investigates the long-range auto-correlations and cross-correlations in bond market. Based on Detrended Moving Average (DMA) method, empirical results present a clear evidence of long-range persistence that exists in one year scale. The degree of long-range correlation related to maturities has an upward tendency with a peak in short term. These findings confirm the expectations of fractal market hypothesis (FMH). Furthermore, we have developed a method based on a complex network to study the long-range cross-correlation structure and applied it to our data, and found a clear pattern of market segmentation in the long run. We also detected the nature of long-range correlation in the sub-period 2007–2012 and 2011–2016. The result from our research shows that long-range auto-correlations are decreasing in the recent years while long-range cross-correlations are strengthening.

Suggested Citation

  • Wang, Zhongxing & Yan, Yan & Chen, Xiaosong, 2017. "Long-range correlation and market segmentation in bond market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 482(C), pages 477-485.
    • Handle: RePEc:eee:phsmap:v:482:y:2017:i:c:p:477-485
    DOI: 10.1016/j.physa.2017.04.066
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    References listed on IDEAS

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    1. Yao, Dongmin & Sun, Rong & Gao, Qiunan, 2022. "The network structure of the China bond market: Characteristics and explanations from trading factors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 598(C).

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