Japanese Fixed Income Markets: Money, Bond and Interest Rate Derivatives

458 Pages·2006·5.24 MB·English

by  Jonathan A Batten, Thomas A Fetherston, Peter G Szilagyi

Japanese Fixed Income Markets:
Money, Bond and
Interest Rate Derivatives
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Japanese Fixed Income Markets:
Money, Bond and
Interest Rate Derivatives
Edited by
J.A. Batten
Graduate School of Management, Macquarie University, Sydney, Australia
T.A. Fetherston†
School of Business, University of Alabama at Birmingham, Alabama, US
P.G. Szilagyi
Department of Finance, Tilburg University, Tilburg, The Netherlands
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First edition 2006
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This volume is dedicated to the memory
of our dear friend and colleague Thomas A. Fetherston
Jonathan A. Batten and Peter G. Szilagyi
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CONTENTS
1. Japanese Fixed Income Markets: Money, Bond and Interest Rate
Derivatives 1
J.A. Batten, T.A. Fetherston and P.G. Szilagyi
MACROECONOMIC ENVIRONMENTAL DEVELOPMENTS
2. Recent Developments in Japan’s Corporate Bond Market 33
P.G. Szilagyi
3. The Past, Present and Future of the Securitization Market in Japan 51
R. Coman
4. Risk Management and Derivative Usage in Japan and Neighbouring
Asian and Pacific Countries 77
M. Young and F.M. Chin
5. Macroeconomic Causes of a Decade of Deflation 105
R. Jerram
6. The Relationship between Interest Rates and Economic Activity: How
the Conventional Literature has Dealt with the Japanese Experience 135
R.A. Werner
CREDIT RISK MEASURES AND MANAGEMENT
7. Dynamic Equilibrium Correction Modelling of Yen Eurobond Credit
Spreads 171
S. Pynnönen, W.P. Hogan and J.A. Batten
8. Hedging Market-Wide Credit Risk Using CDS Indexes: The Case of
Japan 187
H. Byström
9. The Distribution of Yen Denominated Credit Spreads 207
C.A. Ellis and W. Hogan
10. The Japanese Credit Rating Environment: Insights from Issuers 233
L.M. Fairchild and Y.S. Shin
vii
viii Japanese Fixed Income Markets: Money, Bond and Interest Rate Derivatives
11. Credit Ratings in the Japanese Bond Market 257
N. Yamori, N. Nishigaki and Y. Asai
INTEREST RATE ANALYSIS
12. Multifractal Modeling of the Japanese Treasury Term Structure 285
S. Jamdee and C.A. Los
13. Continuous Time Interest Rate Models in Japanese Fixed Income Mar-
kets 321
K.B. Nowman
MARKET INTEGRATION
14. How Integrated Are the Equity and Debt Markets? A Comparative
Study of Japanese and the U.S. Capital Markets 349
H.-J. Cha, T. Jithendranathan and J. Kim
15. International Linkages of Japanese Bond Markets: An Empirical
Analysis 371
B.N. Jeon, P. Ji and H. Zhang
16. International Linkages of the Japanese Government Bond Market:
Time-Series Evidence 395
T.J. Brailsford, J.H. Penm and R.D. Terrell
17. Financial Market Integration: Evidence from Stock and Bond Markets
in Japan and the US 413
J. Nagayasu
Author Index 435
Subject Index 443
Chapter 1
JAPANESE FIXED INCOME MARKETS:
MONEY, BOND AND INTEREST RATE
DERIVATIVES
Jonathan A. Batten, Thomas A. Fetherston, Peter G. Szilagyi,
Editors
1. OVERVIEW
The dynamic role of capital markets (here fixed income) to efficiently channel sav-
ings funds from surplus sectors of the economy and to Finance private economic
1
ventures which promotes Economic Growth and Economic development, is a
concept accepted and promoted by governments throughout the world. The role
of Fixed Income Markets as an efficient tool in raising financing for Government
projects (national and local) has been understood and appreciated for centuries
(Homer and Sylla, 1996). The Japanese capital markets were liberalized and de-
controlled after and increasingly opened to foreign participation in the 1970’s.
The fixed income market particularly expanded to finance the government fiscal
deficits commencing in 1975. However, growth in the non-Government side of the
market for Japan has been a more recent phenomenon and a goal of policymakers
in Japan and Asia since 1997. The growth in this phenomenon is presented in the
data section below.
These essential characteristics are the sine qua non of any viable fixed income
market. A shortcoming in any of the important essential characteristics threat-
ens the viability of that fixed income market. The essential characteristics are as
follows:
1 McKinnon (1973) cites the importance of cycling scarce capital in a liberal financial environment
as a positive component of the development process. Although most of the countries in this work are
mature countries in the development process they too can and do benefit from capital markets (Fixed
Income) which enhance and promote economic efficiency.
1