An Analysis of the Determinants of Inflation-linked Bond Prices in Korea

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We estimate term structure using Korean financial data such as nominal spot rates, monthly inflation rates, and a survey of inflation forecasts, and examine the factors affecting Korean inflation-linked bond prices. Inflation-linked bond market yields are higher than the model yields generated using the term structure and the market-model yield differential is explained by the expected inflation rate, on-the-run/off-the-run spread, trading volume, and bond fund cash flows. This shows that inflation-linked bond investors understand the additional benefit of the tax exemption on the notional amount increment caused by inflation that the term structure model ignores, and the inflation-linked bond price is also affected by liquidity and supply–demand pressure.
Publisher
WILEY
Issue Date
2018-10
Language
English
Article Type
Article
Citation

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, v.47, no.5, pp.605 - 633

ISSN
2041-9945
DOI
10.1111/ajfs.12232
URI
http://hdl.handle.net/10203/248755
Appears in Collection
MT-Journal Papers(저널논문)
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