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Long-range correlation and market segmentation in bond market

Zhongxing Wang, Yan Yan and Xiaosong Chen

Physica A: Statistical Mechanics and its Applications, 2017, vol. 482, issue C, 477-485

Abstract: This paper investigates the long-range auto-correlations and cross-correlations in bond market. Based on Detrended Moving Average (DMA) method, empirical results present a clear evidence of long-range persistence that exists in one year scale. The degree of long-range correlation related to maturities has an upward tendency with a peak in short term. These findings confirm the expectations of fractal market hypothesis (FMH). Furthermore, we have developed a method based on a complex network to study the long-range cross-correlation structure and applied it to our data, and found a clear pattern of market segmentation in the long run. We also detected the nature of long-range correlation in the sub-period 2007–2012 and 2011–2016. The result from our research shows that long-range auto-correlations are decreasing in the recent years while long-range cross-correlations are strengthening.

Keywords: Long-range correlation; Interest rates; Fractal market hypothesis; Market segmentation (search for similar items in EconPapers)
Date: 2017
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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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