Study on the Cross-market Effects of Interest Rate Changes Based on Time-varying Parameter State Space Model

The impact of interest rate changes on stock and bond markets is one of the issues domestic and international academic and government management focus on.This paper uses the cross-market information content of interest rate changes contained in order flow,constructs Seemingly Unrelated Regression model to test the cross-market effects of interest rate changes,and builds the time-varying parameter state space model to present the time-varying characteristics of the cross-market effects of interest rate changes.The empirical results show that interest rate changes cause the flight between stock market and Treasury bond market,and between stock market and corporate bond market,and risk contagion between Treasury bond market and corporate bond market.Interest rate changes have a negative impact on stock market through the Treasury bond market,and have a positive impact on stock market through the corporate bond market.The bond market and corporate bond market are the transmission channels of the cross-market effects of interest rate changes.