Institutional Trading and Bond Yields——Theoretical and Empirical Research from the Interbank Bond Market
Based on the daily transaction data of China's interbank bond market,this paper constructs a transaction indicator based on order flows,and studies the ability of different types of institutional investors to predict changes in bond yields through bond pricing mod-els incorporating both public and private information,time series clustering portfolio analy-sis and multiple model analysis.The paper finds that:in the interbank bond market,the transactions of insurance companies,public equity funds,private equity funds,and for-eign institutional investors can predict changes in bond yields,but institutional investors'predictive ability differs in bond types(government bonds and financial bonds),prediction horizons,and sources of the predictive ability.This paper also studies the mechanism be-hind the predictive ability of institutional investors and finds that:among domestic institu-tional investors,public equity funds are better at predicting trading,as well as acquiring and interpreting information;foreign institutional investors have a stronger ability to pre-dict macro and monetary policy information.These results show that in China's interbank bond market,institutional trading contributes to price discovery,increases the information content of bond yields,and improves market efficiency.Finally,this paper puts forward relevant policy recommendations based on the empirical results.
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