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Modeling intraday volatility of European bond markets: A data filtering application

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  • Zhang, Hanyu
  • Dufour, Alfonso

Abstract

This paper studies the intraday volatility of European government bonds under the framework of the multiplicative component GARCH model (Engle and Sokalska, 2012). Intraday return volatility is specified as the product of daily volatility, intraday seasonality, and a unit GARCH process. The model is applied to 10-year European government bonds during the sovereign debt crisis. We observe large transitory intraday volatility often due to illiquidity effects and outliers. We suggest a flexible and effective procedure for jointly filtering mid-quote prices and estimating volatility models. Finally, we show that intraday data contain relevant information for daily volatility forecasts.

Suggested Citation

  • Zhang, Hanyu & Dufour, Alfonso, 2019. "Modeling intraday volatility of European bond markets: A data filtering application," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 131-146.
  • Handle: RePEc:eee:finana:v:63:y:2019:i:c:p:131-146
    DOI: 10.1016/j.irfa.2019.02.002
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    Cited by:

    1. Sensoy, Ahmet & Serdengeçti, Süleyman, 2020. "Impact of portfolio flows and heterogeneous expectations on FX jumps: Evidence from an emerging market," International Review of Financial Analysis, Elsevier, vol. 68(C).
    2. Kin-Boon Tang & Shao-Jye Wong & Shih-Kuei Lin & Szu-Lang Liao, 2020. "Excess volatility and market efficiency in government bond markets: the ASEAN-5 context," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 154-165, March.

    More about this item

    Keywords

    Intraday GARCH; European Bond Markets; Data Filters;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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