Inter-Variety Equilibrium of Chinese Treasury Futures
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Inter-Variety Equilibrium of Chinese Treasury Futures
Wang, Jinzhong | Zhong, Hong | Yu, Zhenjie
Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 2 : pp. 261–290
1 Citations (CrossRef)
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Prof. Jinzhong Wang, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu, Sichuan.
Hong Zhong, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu, Sichuan.
Zhenjie Yu, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu, Sichuan.
Cited By
-
The Chinese Financial System and China’s Role in the Financial World
Chen, Carl R.
Tao, Qizhi
Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 2 P.149
https://doi.org/10.3790/ccm.55.2.149 [Citations: 1]
References
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Hou, Y. H. (2018): Equilibrium relationship and arbitrage opportunity between five-year and ten-year treasury bond futures in China. Southwestern University of Finance and Economics.
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Jiang, R. J./Wang, L. M. (2020): Empirical analysis on statistical arbitrage based on China’s different futures markets, Statistics & Decision, Vol. 36(3), 131–135.
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Liu, W. W. (2019): Research on the cross-breed arbitrage strategy of Treasury bonds, Shanxi University of Finance and Economics.
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Luo, X. L./Li, Y. Z./Rao, H. H. (2003): The application of carry-cost theory to the pricing of financial futures, Journal of Central South University (Social Science Edition), Vol. 9(6), 784–787.
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Poole, W. (1978): Using T-bill futures to gauge interest rate expectations, Economic Review, (Spr), 7–19.
Google Scholar -
Qin, J. J. (2014): Empirical study of pricing and arbitrage in Treasury bond future market, Shanghai Jiao Tong University.
Google Scholar -
Rendleman, R. J., Jr./Carabini, C. E. (1979): The efficiency of the Treasury bill futures market, Journal of Finance, Vol. 34(4), 895–914.
Google Scholar -
Simon, D. P. (1999): The soybean crush spread: Empirical evidence and trading strategies, Journal of Futures Markets: Futures, Options, and Other Derivative Products, Vol. 19(3), 271–289.
Google Scholar -
Sun, Z. Y. (2021): Research on the strategy of cross variety arbitrage of Treasury bond futures based on AR-GARCH model, Northwest Normal University.
Google Scholar -
Tse, Y. K. (1995): Lead-lag relationship between spot index and futures price of the Nikkei stock average, Journal of Forecasting,Vol. 14(7), 553–563.
Google Scholar -
Tse, Y. (1999): Price discovery and volatility spillovers in the DJIA index and futures markets, Journal of Futures Markets. Vol. 19(8), 911–930.
Google Scholar -
Wahab, M./Cohn, R./Lashgari, M. (1994): The gold-silver spread: Integration, cointegration, predictability, and ex-ante arbitrage, Journal of Futures Markets, Vol. 14(6), 709–756.
Google Scholar -
Wang, J. Z./Hu, X. F. (2015): Research on the effectiveness of Chinese Treasury bond futures market, Economic Review, Vol. 6, 55–68.
Google Scholar -
Wang, L./Feng, Q. N. (2015): The interest rate liberalization, the price-discovery and risk-aversion functions of Treasury bond future, Finance Forum, Vol. 20(4), 36–45.
Google Scholar -
Wang, W./Yao, Y. (2015): The application of Treasury futures in commercial bank duration gap management., Shanghai Finance, Vol. 4, 91–95.
Google Scholar -
Wang, Z. (2011): Chinese metal futures arbitrage and risk management research: A case study of SHFE copper and zinc, Zhejiang University.
Google Scholar -
Wu, J. T. (2017): Research on arbitrage strategy of Treasury bonds based on high frequency data, Shanxi University of Finance and Economics.
Google Scholar -
Yang, Y. J./Chen, S. C. (2018): Study on China’s Treasury bond futures spread based on high-frequency data, Accounting and Finance, Vol. 2, 1–6.
Google Scholar -
Yin, X. M./Sun, T./Xu, Z. D. (2008): Feasibility study on cross-commodity arbitrage between palm oil and soybean oil futures on the basis of high frequency data, Rural Economy and Science-Technology, Vol. 8, 84–86.
Google Scholar -
Zhang, J. F./Tang, Y. W./Gang, J. H./Fan, L. L. (2019): Price discovery in China’s interest rate markets: Evidence from the Treasury spot, futures, and interest rate swaps markets, Journal of Financial Research, Vol. 1, 19–34.
Google Scholar -
Zhang, J. W. (2020): Empirical study on cross-variety arbitrage strategy of commodity futures: Based on iron ore and coke, Modern Business, Vol. 28, 90–92.
Google Scholar -
Zhou, L. (2017): Study on commodity futures-spot arbitrage based on GARCH model, Journal of Jilin Business and Technology College, Vol. 33(6), 78–84.
Google Scholar -
Zhu, L. R./Su, X./Zhou, Y. (2015): Empirical study of statistical arbitrage in Chinese future market, Journal of Applied Statistics and Management, Vol. 34(4), 730–740.
Google Scholar -
Zou, Z. Y./Chen, H. C./Li, X. (2019): An empirical study on the asymmetry of soybean futures price fluctuation, Journal of Shaoguan University, Vol. 40(1), 88–93.
Google Scholar -
Butterworth, D./Holmes, P. (2005): The Hedging Effectiveness of UK Stock Index Futures Contracts Using an Extended Mean Gini Approach: Evidence for the FTSE 100 and FTSE Mid250 Contracts, Multinational Finance Journal, Vol. 9(3/4), 131–160.
Google Scholar -
Chen, J. M./Yang, J. F. (2014): Empirical Study on Futures-Spot Arbitrage of China’s Treasury Futures at Present Stage, Zhejiang Finance, Vol. 3, 48–52.
Google Scholar -
Chen, J. Y. (2020): Empirical Study on Futures-Spot Arbitrage and Hedging Strategies of Treasury Futures, Modern Business, Vol. 25, 138–139.
Google Scholar -
Chen, R./Ge, J. (2015): On the Pricing of Treasury Bond Futures: Principles and a Literature Review, Journal of Xiamen University (Arts & Social Sciences),Vol. 1, 33–40.
Google Scholar -
Cornell, B./ French, K. R. (1983): The pricing of stock index futures, Journal of Futures Markets (pre-1986),Vol. 3(1), 1–14.
Google Scholar -
Cox, J. C./Ingersoll, J. E., Jr./Ross, S. A. (1981): A re-examination of traditional hypotheses about the term structure of interest rates, Journal of Finance, Vol. 36(4), 769–799.
Google Scholar -
Cui, L./Huang, K./Cai, H. J. (2015): Application of a TGARCH-wavelet neural network to arbitrage trading in the metal futures market in China, Quantitative Finance, Vol. 15(2), 371–384.
Google Scholar -
Elton, E. J./Gruber, M. J./Rentzler, J. (1984): Intra-day tests of the efficiency of the Treasury bill futures market, Review of Economics and Statistics, 129–137.
Google Scholar -
Emery, G. W./Liu, Q. (2002): An analysis of the relationship between electricity and natural-gas futures prices, Journal of Futures Markets: Futures, Options, and Other Derivative Products, Vol. 22(2), 95–122.
Google Scholar -
Fang, Y. X./Zheng, X. (2014): Study on arbitrage strategies based on China’s Treasury futures restart data, Price: Theory & Practice, Vol. 11, 83–85.
Google Scholar -
Figlewski, S. (1984): Hedging performance and basis risk in stock index futures, Journal of Finance, Vol. 39(3), 657–669.
Google Scholar -
Haigh, M. S./Holt, M T. (2002): Crack spread hedging: accounting for time-varying volatility spillovers in the energy futures markets, Journal of Applied Econometrics, Vol. 17(3), 269–289.
Google Scholar -
Hemler, M. L. (1990): The quality delivery option in Treasury bond futures contracts, Journal of Finance, Vol. 45(5), 1565–1586.
Google Scholar -
Hou, Y. H. (2018): Equilibrium relationship and arbitrage opportunity between five-year and ten-year treasury bond futures in China. Southwestern University of Finance and Economics.
Google Scholar -
Jiang, R. J./Wang, L. M. (2020): Empirical analysis on statistical arbitrage based on China’s different futures markets, Statistics & Decision, Vol. 36(3), 131–135.
Google Scholar -
Kim, A. (2015): Does futures speculation destabilize commodity markets?, Journal of Futures Markets, Vol. 35(8), 696–714.
Google Scholar -
Kolb, R. W./Chiang, R. (1982): Duration, immunization, and hedging with interest rate futures, Journal of Financial Research, Vol. 5(2), 161–170.
Google Scholar -
Li, J. (2019): Empirical study on futures-spot arbitrage opportunities of China’s Treasury futures, Fujian Quality Management, Vol. 15, 11–111.
Google Scholar -
Li, S./Bao, Y./Peng, C./Zhao, Y. L. (2019): Pricing of government bond futures embedded quality option and timing option, Journal of Systems Science and Mathematical Sciences, Vol. 3, 341–352.
Google Scholar -
Liu, C./Wang, F./Liu, X. D./Liu, L. (2015): Study on arbitrage, hedging and investment strategies of Treasury futures, Communication of Finance and Accounting, Vol. 27, 11–113.
Google Scholar -
Liu, W. W. (2019): Research on the cross-breed arbitrage strategy of Treasury bonds, Shanxi University of Finance and Economics.
Google Scholar -
Luo, X. L./Li, Y. Z./Rao, H. H. (2003): The application of carry-cost theory to the pricing of financial futures, Journal of Central South University (Social Science Edition), Vol. 9(6), 784–787.
Google Scholar -
Miao, Y./Zhu, J. M. (2019): Empirical study of arbitrage strategy on Hushen 300 Index futures base on GARCH, Journal of Beijing Institute of Graphic Communication, Vol. 27(5), 77–80.
Google Scholar -
Mitchell, J. B. (2007): Soybean crush spread arbitrage: Trading strategies and market efficiency. Available at SSRN 987507.
Google Scholar -
Peng, J. F. (2010): Research about statistical arbitrage on futures: Based on soybean, soybean meal and soybean oil futures, Shandong University.
Google Scholar -
Poole, W. (1978): Using T-bill futures to gauge interest rate expectations, Economic Review, (Spr), 7–19.
Google Scholar -
Qin, J. J. (2014): Empirical study of pricing and arbitrage in Treasury bond future market, Shanghai Jiao Tong University.
Google Scholar -
Rendleman, R. J., Jr./Carabini, C. E. (1979): The efficiency of the Treasury bill futures market, Journal of Finance, Vol. 34(4), 895–914.
Google Scholar -
Simon, D. P. (1999): The soybean crush spread: Empirical evidence and trading strategies, Journal of Futures Markets: Futures, Options, and Other Derivative Products, Vol. 19(3), 271–289.
Google Scholar -
Sun, Z. Y. (2021): Research on the strategy of cross variety arbitrage of Treasury bond futures based on AR-GARCH model, Northwest Normal University.
Google Scholar -
Tse, Y. K. (1995): Lead-lag relationship between spot index and futures price of the Nikkei stock average, Journal of Forecasting,Vol. 14(7), 553–563.
Google Scholar -
Tse, Y. (1999): Price discovery and volatility spillovers in the DJIA index and futures markets, Journal of Futures Markets. Vol. 19(8), 911–930.
Google Scholar -
Wahab, M./Cohn, R./Lashgari, M. (1994): The gold-silver spread: Integration, cointegration, predictability, and ex-ante arbitrage, Journal of Futures Markets, Vol. 14(6), 709–756.
Google Scholar -
Wang, J. Z./Hu, X. F. (2015): Research on the effectiveness of Chinese Treasury bond futures market, Economic Review, Vol. 6, 55–68.
Google Scholar -
Wang, L./Feng, Q. N. (2015): The interest rate liberalization, the price-discovery and risk-aversion functions of Treasury bond future, Finance Forum, Vol. 20(4), 36–45.
Google Scholar -
Wang, W./Yao, Y. (2015): The application of Treasury futures in commercial bank duration gap management., Shanghai Finance, Vol. 4, 91–95.
Google Scholar -
Wang, Z. (2011): Chinese metal futures arbitrage and risk management research: A case study of SHFE copper and zinc, Zhejiang University.
Google Scholar -
Wu, J. T. (2017): Research on arbitrage strategy of Treasury bonds based on high frequency data, Shanxi University of Finance and Economics.
Google Scholar -
Yang, Y. J./Chen, S. C. (2018): Study on China’s Treasury bond futures spread based on high-frequency data, Accounting and Finance, Vol. 2, 1–6.
Google Scholar -
Yin, X. M./Sun, T./Xu, Z. D. (2008): Feasibility study on cross-commodity arbitrage between palm oil and soybean oil futures on the basis of high frequency data, Rural Economy and Science-Technology, Vol. 8, 84–86.
Google Scholar -
Zhang, J. F./Tang, Y. W./Gang, J. H./Fan, L. L. (2019): Price discovery in China’s interest rate markets: Evidence from the Treasury spot, futures, and interest rate swaps markets, Journal of Financial Research, Vol. 1, 19–34.
Google Scholar -
Zhang, J. W. (2020): Empirical study on cross-variety arbitrage strategy of commodity futures: Based on iron ore and coke, Modern Business, Vol. 28, 90–92.
Google Scholar -
Zhou, L. (2017): Study on commodity futures-spot arbitrage based on GARCH model, Journal of Jilin Business and Technology College, Vol. 33(6), 78–84.
Google Scholar -
Zhu, L. R./Su, X./Zhou, Y. (2015): Empirical study of statistical arbitrage in Chinese future market, Journal of Applied Statistics and Management, Vol. 34(4), 730–740.
Google Scholar -
Zou, Z. Y./Chen, H. C./Li, X. (2019): An empirical study on the asymmetry of soybean futures price fluctuation, Journal of Shaoguan University, Vol. 40(1), 88–93.
Google Scholar
Abstract
Treasury futures, important tools in interest risk management, need to maintain price equilibrium between different varieties. In this paper, we conduct research on ten-, five-, and two-year Treasury futures in China’s futures market. The auto-regression model is used to fit and predict the spot yield, the CTD (cheapest to deliver) price is used in valuing Treasury futures, and the transaction cost and market friction are considered in building the arbitrage-free spread interval. By comparing the amount of deviation and the equilibrium reversion speed, we analyse the inter-variety price equilibrium between Treasury futures. We find that there are many arbitrage opportunities among the three varieties, and the market is not fully efficient. Through further analysis of the pairwise spread relationship of the futures, we conclude that longer operation of the Treasury futures market will lead to higher market efficiency, shorter duration of arbitrage opportunities, and a faster return to equilibrium. The existing literature mainly focuses on the equilibrium relationship between two Treasury futures in statistical terms, but this paper examines the equilibrium relationship between all existing varieties of Treasury futures in China’s market based on pricing, which expands the subject and methods of research on inter-variety equilibrium in Treasury futures.