Notice of Retraction: Official Interest Rate and Bond Excess Return in Chinese Bond Market

Abstract

The deposit and lending interest rates of commercial banks are regulated by Chinese central bank and are called official interest rates. They change only a few times during sample period from March 1995 to December 2006. Market interest rates and bond excess returns are determined by investors' trading activities. The theoretical analysis and empirical result both reveal the great influence of the official interest rates on bond excess returns. The influence causes the deviation of the market interest rates from their theoretical level according to expectations hypothesis and so bond excess returns are mainly determined by the official rates in the early part of the sample period, but influence of official interest rates on bond excess returns becomes less in the late part of the sample period. Besides the official rates, inflation rate is another factor that has big influence on the bond excess returns.