Hedging effectiveness of Chinese Treasury bond futures: New evidence based on nonlinear analysis

Qingsong Ruan, Mi Zhou, Linsen Yin and Dayong Lv

Physica A: Statistical Mechanics and its Applications, 2021, vol. 565, issue C

Abstract: Using multifractal detrended fluctuation analysis (MF-DFA) and multifractal detrended cross-correlation analysis (MF-DCCA) methods, this paper investigates the hedging effectiveness of Chinese Treasury bond futures. We utilize MF-DFA approach and show that Treasury bond spot and futures markets are multifractal. Moreover, results based on MF-DCCA suggest persistent cross-correlation between 10-year Treasury bond spot and futures, but no significant cross-correlation between 5-year Treasury bond spot and futures. Interestingly, there also exists persistent cross-correlation between 10-year Treasury bond futures and other Treasury bonds (5-year and long-term). Results based on MF-CCA verify the persistent cross-correlations above. Our findings imply that 10-year Treasury bond futures contracts can serve as better tools to hedge interest rate risk.

Keywords: Hedging effectiveness; Treasury bond futures; MF-DCCA; MF-CCA; Nonlinear cross-correlation (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:565:y:2021:i:c:s0378437120308517

DOI: 10.1016/j.physa.2020.125553

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