Empirical Research On The Term Structure Of Interest Rates In China

Interest rate is the most basic and important concept in the economic and financial field.The summary says, research on interest rate may include two aspects.One is about interest rate level research, the other is about interest spread. The latter pays attention to the relationship between short- and long-term interest rates,which is called term structure of interest rates or yield curve.In mature financial market, the term structure of interest rates is a price datum of financial instruments, such as fixed-income securities and financial derivatives .For several dozens years, overseas theorists have carried on massive theoretical and emiprical research on the term structure of interest rates.This article talks about the term structure of interest rates in China,from the multiple angles of characteristics,influential facters and information function. Thus,this article is expected to offer some reference and theoretical support for the construction of term structure in China that is more perfect and efficient.Based on the train of thoughts,the article devotes six chapters to study the related issues.Chapter One makes a general analysis on the term structure of interest rates.This chapter first clarifies the key concepts, then sets forth some estimate mehtods and their interrelations,that of term structure of interest rates.Last,it discusses the information contained in term structure.Chapter Two reviews the academic literature on the term structure according to the logical relation of each other,building theoretical basis for the follow-up empirical research. Basiclly,these literature can be classified two categories:traditonal and modern theory. Regarding the former,this chapter mainly narrates and comments the expecations hypothesis, liquidity preference, market segmentation and preferred habitat theories. Regarding the latter, it reviews the dynamic models of term structure including equilibrium and arbitrage models, also involves the latest progress such as market model, the infinite-dimension.Chapter Three carries on the characteristic research to the term structure in China. It first describes the development of China's treasury bonds market and then analyzes the characteristics of term structure under the special market environment. On the one hand, it carries on the qualitative description to the characteristics of term structure in China from aspects and so on foundation data, datum function. On the other hand, stresses in quantative analysis including statistic characteristics as well as correlation and stationary test.Chapter Four tests the expecations hypothesis of the term structure of interest rates in China.Expecations hypothesis argues that expecations about futuer interest determinate the shape of yield curve,thus there is information of future interest level in the term structure. This chapter makes empirical test on whether EH holds in China with various classic methods,such as linear regression,cointegration and VAR and so on. At the end, it examines the quality of data and models itself,furthmore interprets the theoretical significance of these empirical evdience.Chapter Five is devoted to the research how economic factors affect the movement of term structure of interest rates. Actually,the test on EH is to inspect the determining factor of term structure. However, the dynamic characteristics of term structure is extremely complex for there are many factors cause the term structure shift.This chapter tries to find what factors moved the term structure of interest rates in China during the past two years. First, it analyzes the shift characterics of term structure by factor analysis,resultly extracts three common factors of level,steepness and curvature.Then,it tests how some macro economic variables affect the movement of term structure.Finally,this chapter tests the influence of unscheduled monetary policy announcements on the term structure.Chapter Six further dissusses the information fuction of term structure in China, based on the empirical research results.It is found that economic factors cannot provide the complete explanation to the movement of term structure in China, and this has to a great extent restricted fuction of term structure. In view of these factors which restrict term structure, this chapter suggests to promote the formation mechanism of term structure more perfect by improve treasury bonds offer,enrich the variety of bonds'term and so on.On the basis of term structure of interest rates theories, this thesis conducts the empirical research on the term structure in China, and obtains following conclusion: 1. The segment of treasury bonds market causes the difference term structure of interest rates between the interbank market and exchange market.To some extent,it weaken the representation and datum of term structure.2. The term structure of interest rates in China presents two basic characteristics. First,the behavior of long-term interest rate is consistent with that of short-term interest rate,and at any time, the long-term rate is higher than short-term one.It suggests that there is term premium.Second,long-term interest series is stationary and mean-reversion while short-term interest rate is not.3. There is no evidence to support EH in China,in other words,the shape of yield curve cannot provide the useful information about future interest rate level.Additionally, the long end of yield curve is downward on average, and this feature suggests that convexity can affect the shape of yield curve besides the expectation.4. Three factors of level,steepness and curvature can explain almost 95% of variance of term structure,which is quite close to the overseas research conclusion.Nevertheless, in the sample period, steepness but level dominated the shift of yield curve,which is different from the foreign schalor's rusults. Moreover, compared with the overseas empirical result, explanation of curvature to term structure is stronger.5. Many macro economic variables influence steepness of term structure of interest rates.Hereinto,variables relate to monetary policy such as CHIBOR,CPI exert strong influence on the steepness.It is mainly M2 indicating the scale of fund in bond market affects the level of term structure.,while the curvature is influenced by Shanghai stock index,M2 and CPI.6. Generally, the monetary policy announcement has impact on the yield of treasury bonds.The persistence and significance of influence depends on the strength of instrument and the market expectation.As for the yield curve, monetary policy mainly affects the short end rather than long end,the latter is affected by the institutional investor's behavior.It shows that term structure of interest rates in China cannot play a role in the transimssion mechanism of interest rate.The contributions of this thesis are mainly embodied in some innovations:1. The thesis makes empirical test on EH of term structure in China with varrious methods.Hereinto,It is rare in domestic research to test EH by VAR method.2. Event methodology is applied in analyzing the influence of monetary policy announcement on term structure of interest rates,the conclusion of which explains well the realities.3. Based on the empirical research conclusion, this article confirms some valuable viewpoints such as the exchange bond market is more efficiency than interbank market, the term structure of interest rates in China cannot play a role in the transimssion mechanism of interest rate.