Long-range Correlation and Market Segmentation in Bond Market

Zhongxing Wang, Yan Yan and Xiaosong Chen

Papers from arXiv.org

Abstract: This paper looks into the analysis of 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 apply 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 to 2012 and 2011 to 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.

Date: 2016-10
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1610.09812

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