Volatility in EMU sovereign bond yields: Permanent and transitory components
AbstractThis paper 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 for daily yields for 11 EMU countries (EMU-11), during the 2001-2010 period. In a first step, we decompose volatility in permanent and transitory components using Engel and Lee (1999)´s component-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 closed linked: core EMU countries and peripheral EMU countries. Finally, in a third step, we make a cluster analysis that further support 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 InfoPaper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 11-03.
Length: 36 pages
Date of creation: Apr 2011
Date of revision:
Conditional variance; Component model; Cluster analysis; Sovereign bond yields; Economic and Monetary Union;
Other versions of this item:
- Sim�n Sosvilla-Rivero & Amalia Morales-Zumaquero, 2012. "Volatility in EMU sovereign bond yields: permanent and transitory components," Applied Financial Economics, Taylor & Francis Journals, vol. 22(17), pages 1453-1464, September.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-14 (All new papers)
- NEP-EEC-2011-05-14 (European Economics)
- NEP-FMK-2011-05-14 (Financial Markets)
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- Antonakakis, Nikolaos & Vergos, Konstantinos, 2012.
"Sovereign Bond Yield Spillovers in the Euro Zone During the Financial and Debt Crisis,"
43284, University Library of Munich, Germany.
- 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.
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