Bond Market Dynamics in East Asian Countries

Abstract

This study investigates the degree of interdependencies among seven individual East Asian bond markets and the U.S. market. Results based on co-integration analysis and GJR-DCC-GARCH model suggest that: (i) there is no long-run co-integration relationship between any bond market pairs in the sample; (ii) the East Asian bond markets, however, show interdependencies in the short-run. Significant information spillover effects are identified at both return and volatility level between country pairs, although the degrees of the effects vary; (iii) the decoupling and recoupling phenomenon of the conditional correlations also exists in the bond markets during and after the recent global financial crisis. Moreover, we find there is significant increase in time-varying conditional correlations between East Asian bond market pairs (thirteen out of twenty one) after the crisis period. Overall, these results indicate that the integration in East Asian bond markets is still at its early stage compared to European markets, but is moving towards a more integrated market.