Dynamics of Bond Returns in the Emerging Markets: A Study of the Thai Bond Market

Abstract

The distributional properties of securities prices, and rate of returns have important implications for financial modeling. Mean and variance are the key variables in the valuation models. Considerable amount of work has been done to identify the distribution of securities price changes and the rates of return as characterized by volatile-variance and stationary period. The general conclusion of these studies is that the speculative price changes and return series are nonlinear and intertemporal dependence in nature (Bollerslev, 1987). This conclusion is based a phenomenon that was been observed by Mandelbrot (1963), large changes of returns and variance of returns tend to be followed by other large changes in the same direction either upward or downward movements. Moreover, the absence of serial correlation in the time series of the rate of returns, does not necessary means statistical independence. However this phenomenon has been studied in the past only for stocks and foreign exchange rates only and to our knowledge not for the corporate bonds.

Article Footnote

The authors would like to thank Dr. Anya Khantavith, Dr. N. N. Nagarur for their valuable comments, the Securities One Company for the data provided.