Martingale property in bond futures return including volatility spillover effect from bank bill futures

This paper analyses the time series properties of the daily return from the ten-year bond futures contracts traded on the Sydney Futures Exchange (SFE), together with the transmission of volatility from other interest rate futures contracts. The methodology relies on appropriate modelling of the conditional heteroscedasticity observed in the futures price change series. It is then evident that the volatility spillover effect exists from the short-term bank bill futures to the ten-year bond futures and not the other way. This suggests that the traders attempt to make inferences from price movements in other interest rate futures contracts which ultimately impinge upon the price movement in the bond futures contracts. It is indicative of the expectation theory of the term structure.The author is Lecturer in Finance in the School of Finance and Economics, University of Technology, Sydney.