Abstract: Using a Granger causality test and error correction model,the lead-lag effect of 1-day and 7-day repo rates in China interbank bond market and Shanghai Stock Exchange is investigated.Empirical results show strong evidence that the repo rates in exchange lead those in interbank.The repo rates in China interbank bond market do not perform a benchmark role as it should be.Within the interbank market,7-day repo leads 1-day repo less significantly.These results indicate that the true value of repo rates reflect faster in an active-trading market,which is not necessarily liquid.

Key words: repo rate, benchmark rate, granger causality test, error correction model, lead-lag effect