The Chinese Government Bond Returns

29 Pages Posted: 13 Jun 2010

See all articles by Jiang Wang

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Zhishu Yang

Tsinghua University - School of Economics & Management

Dongyan Ye

Cheung Kong Graduate School of Business

Date Written: March 20, 2010

Abstract

In this paper, we analyze the Chinese Government Bond (CGB) market. We find that CGB returns exhibit three common risk factors, which are well captured by three indices composed of short-, medium-, and long-term bonds. Moreover, these common risk factors exhibit strong momentum. In particular, weekly returns on medium and long maturity bond portfolios have a serial correlation of 27.73% and 31.29%, respectively. We further show that the serial correlation in bond returns allows significant profits from using simple momentum strategies. The strong momentum in bond portfolio returns indicates market inefficiencies. We further compare CGBs facing different restrictions on their trading in different markets and find that bonds with more restrictions allow more momentum profits.

Keywords: Chinese Government Bond, common factors, momentum profit, market segmentation

JEL Classification: G12;G15

Suggested Citation

Wang, Jiang and Yang, Zhishu and Ye, Dongyan, The Chinese Government Bond Returns (March 20, 2010). Available at SSRN: https://ssrn.com/abstract=1623747 or http://dx.doi.org/10.2139/ssrn.1623747

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-614
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Cambridge, MA 02142
United States
617-253-2632 (Phone)
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China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

Dongyan Ye (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

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