The Study Of Spillover Effects Between Exchange Bond Market And Inter-Bank Bond Market

Since the recovery of issuing treasury bonds, China’s bond market is growing year by year. Now, our bond market is made up of exchange bond market, inter-bank bond market and commercial banks counter bond market. But the fragmentation of trading system, market participants, trading products and regulators among these sub-markets resists the development of China’s bond market, our bond market is now in a state of division. As commercial bank counter is an extension of the inter-bank bond market, exchange bond market and inter-bank bond market are objects to study. In this paper, I will study the spillover effects between this two bond market by the combination of theoretical and empirical methods. So that I can study the integration of our bond market from the spillover effects.In the theoretical study, I review relevant studies as the basis of my theoretical study. Then I study the return spillover, volatility spillover and bond market integration between the exchange bond market and the inter-bank bond market. I study the manifestations of the return spillover and volatility spillover, analyze the influence to our bond market of spillover effects, and introduce the development needs of bond market integration and cross-market custody transfer. Then I study the VAR model, BEKK-GARCH model and DCC-GARCH model and tell the standard of spillover effects and the integration of bond market.In the empirical study, there is descriptive statistical analysis before the empirical study. Then I use the VAR model to test the return spillover between the exchange bond market and the inter-bank bond market. On the basis of VAR model, I build BEKK-GARCH model to test the volatility spillover between this two markets. At last, I build DCC-GARCH model to test the dynamic correlation between this two markets so that I can study the bond market integration. The empirical study results is:1.There is one-way return spillover between the exchange bond market and the inter-bank bond market. The reason I conclude is the different of market participants and trading motives, and also the trading system affects the efficiency of trading.2. There is two-way volatility spillover between the exchange bond market and the inter-bank bond market. Because there is cross-market custody transfer between this two bond markets, the co-participants increase and the same kind of bond products increase across this two bond markets.3.The result of DCC-GARCH shows that there is a positive dynamic correlation between this two markets, and this result reflect that the market integration is at a poor level. I summarize that approval and regulatory inconsistencies, the corporate bonds development lag behind, the cross-market custody transfer system is still flawed and the two markets lack uniform interconnection of hosting system and clearing system.In the last of the paper, on the basis of the theoretical study and the empirical study, I give my conclusions and policy recommendations:1.We should standardize the monitoring, and establish a multi-level bond monitoring system.2.We should establish a unified bond custody settlement system to promote the free flow of funds in the bond market.3.Gardually open up cross-market conditions for custody transfer to increase the efficiency of the cross-market custody transfer system.