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Correlation and volatility on bond markets during the EMU crisis: does the OMT change the process ?

Author

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  • Franck Martin

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Jiangxingyun Zhang

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article studies the correlation and volatility transmission between the European sovereign debt markets during the period of 2008-2013. By applying a multivariate GARCH model and a flight-to-quality test, the empirical results support not only the existence of flight-to-quality from the periphery countries (Italy, Portugal, Spain, Ireland and Greece) to the pivot countries (France and Germany), but also the flight within each group. This can be explained by a new phenomenon of speculation in bond markets which didn't exist before the debt crisis. However, the estimations bring little evidence that allow us to generalize it to all markets. It seems that in terms of volatility, the pivot countries are relatively difficult to be influenced by the external turbulence. Although we prefer to believe that Europe has walked out of the sovereign debt crisis after the Outright Monetary Transaction (OMT) plan, this study doesn't bring much support for this point of view.

Suggested Citation

  • Franck Martin & Jiangxingyun Zhang, 2014. "Correlation and volatility on bond markets during the EMU crisis: does the OMT change the process ?," Post-Print halshs-01101986, HAL.
    • Handle: RePEc:hal:journl:halshs-01101986
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    References listed on IDEAS

    as
    1. Kontonikas, Alexandros & Arghyrou, Michael G. & Afonso, António, 2012. "The determinants of sovereign bond yield spreads in the EMU," SIRE Discussion Papers 2012-88, Scottish Institute for Research in Economics (SIRE).
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    Cited by:

    1. Martin, Franck & Zhang, Jiangxingyun, 2017. "Modelling European sovereign bond yields with international portfolio effects," Economic Modelling, Elsevier, vol. 64(C), pages 178-200.
    2. Kavita Sirichand & Simeon Coleman, 2015. "International yield curve comovements: impact of the recent financial crisis," Applied Economics, Taylor & Francis Journals, vol. 47(43), pages 4561-4573, September.
    3. Franck Martin & Jiangxingyun Zhang, 2020. "La structure des taux revisitée pour période de crise : entre contagion, flight to quality et quantitative easing," Revue économique, Presses de Sciences-Po, vol. 71(4), pages 623-665.

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    More about this item

    Keywords

    EMU debt crisis; bond markets; OMT; Draghi Put; multivariate GARCH model; flight to quality; speculation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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