A Study On Price Discovery Function Of Treasury Futures Price In China

With the advancement of interest rate marketization in China,financial instruments for managing interest rate risks are increasingly demanded by market investors.The rapid expansion of the spot market for government bonds has also created conditions for restarting the futures market.On February 13,2012,the simulation of China Treasury futures started.On September 6,2013,China's treasury futures re-listed and traded,and the first batch of three 5-year treasury bond futures contracts were listed on CFFE,filling the gap in China's interest rate derivatives market.On March 20,2015,the first batch of three 10-year Treasury futures contracts were listed and traded.In order to examine whether the Treasury futures market after re-listing is effective and whether it has a price discovery function,this paper intends to theoretically explore the equilibrium relationship between futures prices and spot prices,and then empirically analyze the price discovery mechanism of the futures market through measurement methods.The research framework is as follows: First,starting with the first moment of the treasury bond price(the average rate of return),we will study the price-led relationship between the futures market and the spot market and the contribution share of price discovery.The cointegration test was used to establish the VEC model.Granger causality test and generalized impulse response function were used to analyze the lead-lag relationship between futures prices and spot prices.Based on the VEC model,PT decomposition was used to discover the contribution of long-term price by each market.Secondly,based on the second moment of the bond price(variability of returns),DCC-GARCH and Copula models are used to study the volatility spillover effects of the treasury futures market and the spot market,i.e.the correlations between the volatility of the markets.It is concluded that when the market receives a disturbance,the treasury futures market can often prioritize new information into the spot market and guide the price movement of the spot market.For the price discovery share,the ratio of the five-year treasury bond futures market to the long-term price is smaller than the spot market,while the 10-year treasury futures market contributes more to the price discovery than to the spot market.For the study of volatility spillovers,the results obtained from the Copula model show that the average correlation between the 5-year and 10-year treasury spot market in recent years is not high.The results obtained by DCC GARCH show that although the average value of the correlation coefficient is not high,the correlation of the futures spot market of 10-year Treasury bonds has been increasing in the fluctuations,and the improvement in the effectiveness of information transfer between markets is relatively large.The innovation of this paper is mainly reflected in the scope of the study and the use of models.As the 10-year treasury futures were listed shortly,previous articles used 5-year treasury bond futures data when researching the price discovery function of the Chinese government bond futures market,and the sample size was small.In this paper,10-year treasury futures data will be included to analyze the current price discovery function of the treasury futures market,and compare the price discovery capabilities of two different kind of treasury futures markets.The existing literature on the price discovery of the treasury futures market is mostly not comprehensive in perspective,and the research methods are often simple.Some of them describe the speed of price discovery,some of them analyze the ratio of price discovery,some of them study the spillover of price volatility,or study the two aspects of them together.This article intends to conduct an in-depth study of the price discovery function of China's 5-year and 10-year treasury futures markets from all three perspectives.For the study of the volatility spillover effect of spot prices,this paper intends to innovatively use the Copula method to analyze the correlation of fluctuations between treasury futures and spot market,capture the nonlinear correlation and compare the conclusions of different analysis methods.Studying the effect of price discovery in treasury futures market can reflect the degree of disclosure and forecast of spot market price by the treasury futures market,and provide important reference for the issuance pricing of treasury primary market.Explore possible problems in the market and ways to improve it,as a reference for market regulators.