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Why are excess returns on China’s Treasury bonds so predictable? The role of the monetary system

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Listed author(s):
  • Fan, Longzhen
  • Tian, Shu
  • Zhang, Chu
Registered author(s):

    Abstract

    It is well documented that the time-varying bond excess returns can be explained by predetermined variables such as information in the term structure and macro economic variables. Recent studies suggest that demand and supply of bonds influence bond excess returns. We extend the literature and find that monetary system attributes affect return dynamics in the bond market. By introducing a theoretical model to forecast excess returns on Treasury bonds in the context of China’s unique monetary system, this paper attributes the predicted components of bond excess returns mainly to the inflexible term structures of official interest rates set by China’s central bank.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426611002172
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 1 ()
    Pages: 239-248

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:1:p:239-248
    DOI: 10.1016/j.jbankfin.2011.07.006
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

    Keywords: Bond excess return; Monetary system; Official rate; Inflation rate;

    Find related papers by JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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    Cited by:

    1. Hong, Yongmiao & Lin, Hai & Wu, Chunchi, 2012. "Are corporate bond market returns predictable?," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2216-2232.
    2. Löchel, H. & Packham, N. & Walisch, F., 2016. "Determinants of the onshore and offshore Chinese government yield curves," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 77-93.
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