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Bond market integration in East Asia: Multivariate GARCH with dynamic conditional correlations approach

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  • Tsukuda, Yoshihiko
  • Shimada, Junji
  • Miyakoshi, Tatsuyoshi

Abstract

This paper examines the degree of integration between East Asian bond markets and intraregional cross-border bond markets, the Japanese bond market and the US(global) bond market. A DCC-GARCH model and a dynamic conditional variance decomposition method are applied to the local currency weekly government bond yields of eight East Asian markets over the period January 1, 2001 to December 31, 2012. We find low levels of integration between the local bond markets in the ASEAN4 (Indonesia, Malaysia, the Philippines, and Thailand) and the external markets in terms of both dynamic conditional correlations and dynamic conditional variance decompositions. There has been no upward trend in these two measures of integration for emerging East Asian countries. However, Hong Kong and Singapore are highly integrated with the external markets. In particular, they are more integrated with the US market than with the intraregional cross-border bond markets. The Japanese market has minimal effects on the East Asian markets.

Suggested Citation

  • Tsukuda, Yoshihiko & Shimada, Junji & Miyakoshi, Tatsuyoshi, 2017. "Bond market integration in East Asia: Multivariate GARCH with dynamic conditional correlations approach," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 193-213.
    • Handle: RePEc:eee:reveco:v:51:y:2017:i:c:p:193-213
    DOI: 10.1016/j.iref.2017.05.013
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    More about this item

    Keywords

    East Asian bond markets; Bond market integration; Dynamic conditional correlation; Dynamic conditional variance decomposition; DCC-GARCH model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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