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Global Yield Curves and Sovereign Bond Market Integration

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  • ZHU Xiaoneng

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

  • Shahidur RAHMAN

    (Nanyang Technological University, Singapore)

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    Abstract

    We extract global yield curve factors based on the affine arbitrage-free dynamic Nelson-Siegel model. The measure of integration proposed in the paper allows time-varying partial segmentation of national and global government bond markets. It takes into account the maturity structure of yields, therefore it is consistent in time series and cross-section as well. Though global factors and country-specific factors are highly correlated, the international bond market is less integrated than one might expected based on correlation analysis or prior knowledge of investment restrictions. The difference stems from 1) the integration asymmetry of factors:level factor is more integrated than slope and curvature factors; 2) heterogeneous factors dynamics: one factors integration may accompany the segmentation of other factors. Yet the expected integration is stable over the last two decades.

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    File URL: http://www.ntu.edu.sg/hss2/egc/wp/2009/2009-02.pdf
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    Bibliographic Info

    Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 0902.

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    Length: 56 pages
    Date of creation: Feb 2009
    Date of revision:
    Handle: RePEc:nan:wpaper:0902

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    3. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
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