Emerging Bond Market Volatility and Country Spreads

Won, Seungyeon; Yun, Young Sup; Kim, Byoung Joon

doi:10.2753/ree1540-496x490105

Cited by 13 publications

(2 citation statements)

References 26 publications

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“…Nevertheless, a distinct reversal of this relationship over an extended temporal horizon becomes apparent. A comparable study by Won et al (2013) examined the persistence of increases in country credit spreads within emerging bond markets. The findings from T-GARCH regressions indicate that, during financial crisis periods, credit spreads in emerging countries may experience sustained growth due to the interplay between spread fluctuations and volatilities, thereby contributing to heightened turbulence in emerging bond markets.…”

Section: Introductionmentioning

confidence: 99%

Volatility Connectedness of MOVE Index and Bond Returns

Baykut,

Gökgöz

2024

Etikonomi

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Research Originality: To the best of our knowledge, this is the first study which measures the impact of the MOVE index on bond yield volatility by comparing its effect on both short-term and long-term. The paper contributes to the existing literature by providing a better understanding of the relationship between maturity and volatility spillover. Research Objectives: This study examines the dynamic volatility connectedness between 2 and 10-year bond yields and the MOVE Index. Furthermore, it is aimed at detecting the transmitter of volatility among variables. Research Methods: Using a data set from 2010 to 2022, the study utilizes a Time-Varying Parameter Vector Autoregression (TVP-VAR) model to analyse the dynamics and relationship between bond yields and the MOVE Index. Empirical Results: The study finds a significant volatility spillover between the MOVE Index and Türkiye's bond yields. Notably, the linkage between the MOVE Index and the 10-year bond rates is stronger than with the 2-year rates. Additionally, the MOVE Index emerges as the primary transmitter of volatility, impacting both bond yields. Implications: This study sheds light on the complexity and dynamics of volatility spread in Türkiye's bond market, providing essential insights for forecasting bond yields and shaping financial policies.JEL Classification: G17, C22, G12How to Cite:Baykut, E., Gökgöz, H. (2024). Volatility Connectedness of MOVE Index and Bond Returns. Etikonomi, 23(1), 27 – 46. https://doi.org/10.15408/etk.v23i1.36131.

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Section: Introductionmentioning

confidence: 99%

Volatility Connectedness of MOVE Index and Bond Returns

Baykut,

Gökgöz

2024

Etikonomi

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“…Not surprisingly, if used in empirical studies, volatility indices usually emerge as the single most important explanatory variable in sovereign spread models, thus precluding us from establishing whether economic fundamentals influence economic uncertainty represented by sovereign spreads variance. This problem is also a natural consequence of the method of choice in empirical sovereign spreads studies; all the reviewed studies except Seungyeon, Young and Byoung (2013) use panel data models. As panel data models are designed to explain the mean spread value and not its variance, the determinants of sovereign spreads variance in panel data studies are almost completely ignored.…”

Section: Introductionmentioning

confidence: 99%

The Determinants of Country Risk Premium Volatility: Evidence from a Panel VAR Model

Palić

Šimović

Vizek

2017

CES

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We use data for 24 European countries, spanning from 1994 to 2015, in order to examine how changes in macroeconomic conditions influence country risk premium volatility proxied by sovereign spreads variance. In the first part of the empirical analysis, we estimate the univariate generalized autoregressive conditional heteroskedasticity (GARCH) model in order to obtain the conditional variance of sovereign bond spreads. We show that an increase in this variance coincides with economic and financial crisis occurring either in the country or globally. In the second part of the empirical analysis, we estimate the panel vector autoregression (panel VAR) model in order to model the interplay between macroeconomic fundamentals (inflation, output gap, public debt and interest rates) and the country's risk premium volatility. We show that overheating of the economy, along with an unexpected increase in public debt, inflation and interest rates, increase the country's risk premium volatility. We also show that a sudden increase in the country´s risk premium volatility depresses the economy, exerts deflationary pressures on consumer prices, and is followed by a strong and permanent increase in public debt.

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