Volatility in EMU sovereign bond yields: permanent and transitory components
AbstractThis article explores the evolving relationship in the volatility of sovereign yields in the European Economic and Monetary Union (EMU). To that end, we examine the behaviour of daily yields for 11 EMU countries (EMU-11), during the period 2001--2010. In a first step, we decompose volatility in permanent and transitory components using Engel and Lee's (1999) Component-Generalized Autoregressive Conditional Heteroscedasticity (C-GARCH) model. Results suggest that transitory shifts in debt market sentiment tend to be less important determinants of bond-yield volatility than shocks to the underlying fundamentals. In a second step, we develop a correlation and causality analysis that indicates the existence of two different groups of countries closely linked: core EMU countries and peripheral EMU countries. Finally, in a third step, we make a cluster analysis that further supports our results regarding the existence of two different groups of countries, with different positions regarding the stability of public finance.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 22 (2012)
Issue (Month): 17 (September)
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Web page: http://www.tandfonline.com/RAFE20
Other versions of this item:
- Simón Sosvilla-Rivero & Amalia Morales-Zumaquero, 2011. "Volatility in EMU sovereign bond yields: Permanent and transitory components," Working Papers 11-03, Asociación Española de Economía y Finanzas Internacionales.
- Simón Sosvilla-Rivero & Amalia Morales-Zumaquero, 2011. "Volatility in EMU sovereign bond yields: Permanent and transitory components," Working Papers del Instituto Complutense de Estudios Internacionales 06-11, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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- Antonakakis, Nikolaos & Vergos, Konstantinos, 2013.
"Sovereign bond yield spillovers in the Euro zone during the financial and debt crisis,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 26(C), pages 258-272.
- Antonakakis, Nikolaos & Vergos, Konstantinos, 2012. "Sovereign Bond Yield Spillovers in the Euro Zone During the Financial and Debt Crisis," MPRA Paper 43284, University Library of Munich, Germany.
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