An Empirical Study On Interest Swap Spread Of Chinese Swap Market

Our interest swap market was established in early 2006.the time was a little late.Compared to mature markets of the developed countries,our interest rate swap market has just begun,the size of the market is still vey small,the market liquidity is very lack.But our interest swap market has developed very quickly.In the early stage of the market,which is the force in the dominant position? ls the speculative force. hedge or arbitrage force in the dominant position?To these questions,the article was the first one which did an empirical analysis on the interest swap spread in our country.The result showed that the investor engaged an interest swap contract on the basis of their anticipation of the future rate. There were very few trades based on the hedge or arbitrage.So there were many arbitrage opportunities in our interest swap market.But because the swap rate included the market anticipations of the future rate.so the swap market was more rational than the cash market.The swap rate starts to appear some ability of forecasting the future interest.In this paper,we investigated the relationship between the swap spreads of different reference rate by the Markov switching regime model(MS-VECM).The results showed that the swap spread which based on repurchase rate had significant impact on swap spread which based on the SHIBOR rate.But the SHIBOR swap spread didn't have a significant impact on the repurchase swap spread.In this paper,we also use the switching autoregessive conditional heteroscedasticity model(SWARCH) to investigate the factors which may affect the interest rate swap spread.The results showed that the interest level impacted on both repurchase swap spread and SHIBOR swap spread.The slope only affected the SHIBOR swap spread.While the interest volatility and the trade cost didn't affect the swap spread.