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Liquidity pull-back and predictability of government security yield volatility

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  • Chundakkadan, Radeef
  • Sasidharan, Subash

Abstract

This paper investigates the relationship between the volatility of government bond yields and liquidity using daily data. We introduce a novel measure of liquidity called Repo Spread created from Reserve Bank of India's recent liquidity operation called Term Repo Operation. The result indicates that liquidity variable has significant explanatory power on the volatility of security yields. Further, we find Repo Spread has significant predictive power on the volatility of government security yields.

Suggested Citation

  • Chundakkadan, Radeef & Sasidharan, Subash, 2019. "Liquidity pull-back and predictability of government security yield volatility," Economic Modelling, Elsevier, vol. 77(C), pages 124-132.
    • Handle: RePEc:eee:ecmode:v:77:y:2019:i:c:p:124-132
    DOI: 10.1016/j.econmod.2018.07.018
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    Cited by:

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    3. Radeef Chundakkadan & Subash Sasidharan, 2021. "Central bank's money market operations and daily stock returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 136-152, January.

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    More about this item

    Keywords

    Liquidity; Volatility; Government securities; Forecasting;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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