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Journal of Banking & Finance Vol. 34 No. 5 2010

Modeling the dynamics of Chinese spot interest rates

Yongmiao Hong1,2; Hai Lin2; Shouyang Wang3,4

1 Cornell University · 2 Xiamen University · 3 Academy of Mathematics and Systems Science · 4 Chinese Academy of Sciences

Abstract

Using the daily data of Chinese 7-day repo rates from January 1, 1997 to December 31, 2008, this paper tests a variety of popular spot rate models, including single-factor diffusion, GARCH, Markov regime-switching and jump-diffusion models. We document that Chinese spot rates are subject to both market forces and administrative forces. GARCH, regime-switching and jump-diffusion models capture some important features of the dynamics of Chinese spot rates, but all models under study are overwhelmingly rejected. We further explore possible sources of model misspecification using diagnostic tests.

DOI
10.1016/j.jbankfin.2009.11.002
Volume
34
Issue
5
Pages
1047-1061
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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