Informational efficiency of sovereign bond markets of India and China: evidence from Toda and Yamamoto Granger causality (1995)

Abstract

The study analyzes the causal relationship between macroeconomic indicators and sovereign bond indices of India and China. The main purpose of this research study is to answer the question how sovereign yields of bond indices in India and China reflects economic conditions and if sovereign bond market of India and China are informationally efficient. Toda and Yamamoto (J Econom 66:225–250, 1995) approach is used for testing Granger causality. Bivariate analysis is performed on monthly data from January 2000 to December 2016, and four macroeconomic indicators are examined such as interest rate, exchange rate, gross domestic product and fiscal deficit. Analysis applies unit root test to check maximal order of integration, VAR lag order selection criteria to check maximum lag order and Wald test for linear restrictions to examine Granger causality.