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Hedging effectiveness of Chinese Treasury bond futures: New evidence based on nonlinear analysis

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  • Ruan, Qingsong
  • Zhou, Mi
  • Yin, Linsen
  • Lv, Dayong

Abstract

Using multifractal detrended fluctuation analysis (MF-DFA) and multifractal detrended cross-correlation analysis (MF-DCCA) methods, this paper investigates the hedging effectiveness of Chinese Treasury bond futures. We utilize MF-DFA approach and show that Treasury bond spot and futures markets are multifractal. Moreover, results based on MF-DCCA suggest persistent cross-correlation between 10-year Treasury bond spot and futures, but no significant cross-correlation between 5-year Treasury bond spot and futures. Interestingly, there also exists persistent cross-correlation between 10-year Treasury bond futures and other Treasury bonds (5-year and long-term). Results based on MF-CCA verify the persistent cross-correlations above. Our findings imply that 10-year Treasury bond futures contracts can serve as better tools to hedge interest rate risk.

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  • Ruan, Qingsong & Zhou, Mi & Yin, Linsen & Lv, Dayong, 2021. "Hedging effectiveness of Chinese Treasury bond futures: New evidence based on nonlinear analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 565(C).
    • Handle: RePEc:eee:phsmap:v:565:y:2021:i:c:s0378437120308517
    DOI: 10.1016/j.physa.2020.125553
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