The aim of this paper is to grasp whether Korea Bond Market is efficient through procedure, in which term structure of interest rate is estimated and appropriate of bond investment strategy with estimated term structure is tested. Because the term structure of interest rate play a role as a compass needle in bond market, it is important to estimate term structure. In this paper, term structure of interest rate is estimated in Korea bond market, cash flow matching strategy is developed, and arbitrage opportunity is obtained. After all, we will know that Korea bond market is not efficient. This inefficiency of Korea bond market is used for investors to get arbitrage profit. This paper introduces the features of Korea bond market and an actual investment strategy. Also, trend of pricing error - difference theoretical price and observed price - is investigated, and tax effect on bond price is researched.
