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Investigating Multiple Changes in Persistence in International Yields

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  • Simeon Coleman

    (School of Business and Economics, Loughborough University)

  • Kavita Sirichand

    (School of Business and Economics, Loughborough University)

Abstract

Although better information about the dynamics of the yields on financial assets is decisive for both borrowers and lenders alike, it is not uncommon, in the literature, for researchers to employ standard unit-root tests to determine the extent of the persistence, and based on such results, treat the entire series as either stationary or non-stationary. In this paper, using weekly data of yields in four international markets – Canada, the UK, the US and the euro area – from March 1997 to October 2013, and employing an approach which allows us to identify regime switches between periods of I(0) versus I(1) behaviour, we provide empirical evidence for the realistic possibility that yields may, in fact, have changing persistence over time. Our results identify and compare, for each market and several maturities, the time variation properties in the dynamics of the yield curves. Some economic implications of our results are discussed.

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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2014_04.

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Date of creation: Jul 2014
Date of revision: Jul 2014
Handle: RePEc:lbo:lbowps:2014_04

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Keywords: Trade; Multiple changes in persistence; yields; diversification;

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  1. Robert Sollis, 2006. "Testing for bubbles: an application of tests for change in persistence," Applied Financial Economics, Taylor & Francis Journals, vol. 16(6), pages 491-498.
  2. Proaño, Christian R. & Schoder, Christian & Semmler, Willi, 2014. "Financial stress, sovereign debt and economic activity in industrialized countries: Evidence from dynamic threshold regressions," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 17-37.
  3. A. M. Robert Taylor, 2005. "Fluctuation Tests for a Change in Persistence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(2), pages 207-230, 04.
  4. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  5. Robert Taylor & Stephen Leybourne & David Harvey, 2004. "Modified Tests for a Change in Persistence," Econometric Society 2004 Australasian Meetings 64, Econometric Society.
  6. Noriega, Antonio E. & Ramos-Francia, Manuel, 2009. "The dynamics of persistence in US inflation," Economics Letters, Elsevier, vol. 105(2), pages 168-172, November.
  7. Erdenebat Bataa & Denise R. Osborn & Marianne Sensier & Dick van Dijk, 2013. "Structural Breaks in the International Dynamics of Inflation," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 646-659, May.
  8. Otavio Ribeiro de Medeiros and Vitor Leone, 2012. "Multiple Changes in Persistence vs. Explosive Behaviour: The Dotcom Bubble," Working Papers 2012/02, Nottingham Trent University, Nottingham Business School, Economics Division.
  9. Halunga, Andreea G. & Osborn, Denise R. & Sensier, Marianne, 2009. "Changes in the order of integration of US and UK inflation," Economics Letters, Elsevier, vol. 102(1), pages 30-32, January.
  10. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
  11. Gorea, Denis & Radev, Deyan, 2014. "The euro area sovereign debt crisis: Can contagion spread from the periphery to the core?," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 78-100.
  12. François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
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