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Volatility Transmission in Asian Bond Markets: Tests of Portfolio Diversification

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  • JENIFER PIESSE
  • NITAWAN ISRASENA
  • COLIN THIRTLE

Abstract

The 1997 Asian crisis illustrated the need to develop local bond markets to reduce vulnerabilities to future mismatches in currency and maturity. This article examines a regional initiative -- the Pan-Asian Bond Index Fund -- and tests the implications for portfolio diversification. Intra- and inter-regional transmission of bond market volatilities between Hong Kong, Singapore and South Korea and from the United States and Japan is investigated. The results show that since Hong Kong and Singapore are highly integrated into global capital markets, the prospects of diversification of investment become undermined. The study provides evidence to assist policy makers in designing bond-index funds as a strategy for portfolio diversification to promote regional bond markets.

Suggested Citation

  • Jenifer Piesse & Nitawan Israsena & Colin Thirtle, 2007. "Volatility Transmission in Asian Bond Markets: Tests of Portfolio Diversification," Asia Pacific Business Review, Taylor & Francis Journals, vol. 13(4), pages 585-607, October.
    • Handle: RePEc:taf:apbizr:v:13:y:2007:i:4:p:585-607
    DOI: 10.1080/13602380701314677
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    References listed on IDEAS

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    1. Robert McCauley & Guorong Jiang, 2004. "Diversifying with Asian local currency bonds," BIS Quarterly Review, Bank for International Settlements, September.
    2. Samir Jahjah & Bin Wei & Vivian Zhanwei Yue, 2013. "Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1275-1300, October.
    3. Fernando A. Broner & Guido Lorenzoni & Sergio L. Schmukler, 2013. "Why Do Emerging Economies Borrow Short Term?," Journal of the European Economic Association, European Economic Association, vol. 11, pages 67-100, January.
    4. Jennifer A. Amyx, 2004. "A Regional Bond Market for East Asia? The Evolving Political Dynamics of Regional Financial Cooperation," Asia Pacific Economic Papers 342, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    5. Guonan Ma & Eli M Remolona, 2005. "Opening markets through a regional bond fund: lessons from ABF2," BIS Quarterly Review, Bank for International Settlements, June.
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    7. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    8. Robert N McCauley, 2003. "Unifying government bond markets in East Asia," BIS Quarterly Review, Bank for International Settlements, December.
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