Coupon Effects and the Pricing of Japanese Government Bonds: An Empirical Analysis

44 Pages Posted: 11 Nov 2008

See all articles by Young Ho Eom

Young Ho Eom

Yonsei University

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Jun Uno

Waseda University

Multiple version iconThere are 3 versions of this paper

Date Written: April 1998

Abstract

In many markets, the term structure of interest rates implied by coupon Treasury bonds provides a key input for pricing and hedging interest rate-sensitive securities. Previous studies in the Japanese market, however, suggest that the prices of the Japanese Government Bonds (JGB's) were significantly affected modelling in the Japanese context bases on interest rate factors could leave to misleading results. Since the previous studies, there have been significant structural changes in the regulatory environment, and in the liquidity of the Japanese bond market in the 1990's. In this light, we examine the effect of these changes on the JGB prices during the period between 1990 and 1996, by analyzing the term structure of interest rates in the JGB market over time. Specifically, we use the B-spline method to fit the term structure of interest rates using weekly prices of "non-benchmark" ten-year JGB's. We also use a non-linear econometric model to examine the significance of the "coupon" effects, which are the results of regulatory, accounting and liquidity factors.

Keywords: Japanese Government Bond Market, Accounting and Tax Effects, Term Structure

Suggested Citation

Eom, Young Ho and Subrahmanyam, Marti G. and Uno, Jun, Coupon Effects and the Pricing of Japanese Government Bonds: An Empirical Analysis (April 1998). NYU Working Paper No. FIN-98-078. Available at SSRN: https://ssrn.com/abstract=1298283

Young Ho Eom (Contact Author)

Yonsei University ( email )

College of Business and Economics
Seoul 120-749
South Korea
+82 2 361 4193 (Phone)
+82 2 392 0504 (Fax)

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

Jun Uno

Waseda University ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku
Tokyo, 1698050
Japan

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