Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union

Díaz, Antonio; Merrick, John J.; Navarro, Eliseo

doi:10.1016/j.jbankfin.2005.05.009

Cited by 38 publications

(22 citation statements)

References 29 publications

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“…Suggested proxies are as follows: the trading volume (Elton and Green, 1998), the number of trades (Fleming, 2001), the expected liquidity over the full life of the issue (Goldreich et al, 2005), the trading activity life cycle (Díaz et al, 2006), the trade size and issue size (Edwards et al, 2007), or the accessibility of a security by dealers (Mahanti et al, 2008).…”

Section: Abnormal Liquidity Measuresmentioning

confidence: 99%

Credit rating announcements, trading activity and yield spreads: the Spanish evidence

Romero

ndez

2012

IJMEF

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Abstract:We test whether or not different rating announcements contain pricing-relevant information and modify trading activity patterns in the Spanish commercial paper and corporate bond markets. We observe a statistically significant widening of yield spreads in both segments of the corporate debt market after reviews of downgrades and negative outlook reports. In addition, we find that certain rating announcements encourage trading activity even when the information is not pricing-relevant. The release of information arouses investor interest for the involved securities. Thus, trading frequency increases, although larger-sized transactions, which should denote possible portfolio rebalancing, are not observed. In the commercial paper note market, we also find that that trading volumes fade away after reviews for downgrade. Investors seem to prefer reducing the trading of these short-term securities to liquidating their positions.

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Section: Abnormal Liquidity Measuresmentioning

confidence: 99%

Credit rating announcements, trading activity and yield spreads: the Spanish evidence

Romero

ndez

2012

IJMEF

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“…This database has been previously used by Díaz et al (2006 et al (2004) have studied the volume of negotiation of these titles trough the period 1998-2003.…”

Section: Datamentioning

confidence: 99%

“…The argument in favour of these assets goes in the line of the liquidity improvement over individual sovereign bonds, which could reduce the cost of issuance. Alonso et al (2004) define liquidity as the ease of its conversion into money whereas Díaz et. al (2006) defines liquidity as a feature of financial assets related to the ease with which a security can be traded within a short period of time period of time without causing significant impact on prices.…”

Section: Introductionmentioning

confidence: 99%

“…The instantaneous forward remains defined according to the method of Svensson (1994). Díaz et al (2006) analyse the liquidity structure of the Spanish Treasury bond market using trading volume market share and "auction status" as proxies for liquidity to determine if the entry of Spain in the European Monetary Union (EMU) has had some repercussion in liquidity. They also analyse the impacts of EMU on volatility of yields in the Spanish treasury market 4 , finding a dramatically decline after the market began pricing EMU.…”

Section: Introductionmentioning

confidence: 99%

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A Measure of Liquidity Risk in a Sovereign Debt Market

2011

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Since the seminal paper of Vasicek and Fong (1982) term structure models are estimated assuming that yields are cross-sectionally homokedastic. In this paper, we show that this hypothesis does not hold even for bonds from the same issuer when there are differences in their level of liquidity. Those bonds with a lower daily turnover would experiment a higher volatility around the expected yield determined by the term structure. The existence of a minimum tick size on the bond price negotiation would also produce a higher volatility for those bonds approaching their expiration term. In order to show these effects, we use data from Spanish sovereign bonds from 1988 to 2010, covering more than 700 bonds and 5000 days. With these data we have estimated the out-of-sample error for each bond and day. The variance of these errors is negatively correlated with the turnover of each bond and its duration, while the mean of the error is directly correlated with the estimated variance. Taking into account these features we propose, for fitting the term structure, a modified Svensson (1994) yield curve model where an additional liquidity term is added and parameters are estimated by weighted least squared errors to take into account the liquidity-induced heterokedasticity.

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“…This was done through two channels: first, an appropriate exchange policy ensured an adequate tradable supply of bonds priced near par (at the expense of premium bonds, which some classes of investors avoid). Second, debt exchanges increased the outstanding amounts of strippable bonds that were critical in supporting bond dealer stripping and reconstitution operations in the new strips market (see Díaz et al 2006 for details).…”

Section: Introductionmentioning

confidence: 99%

Fixed income strategies based on the prediction of parameters in the NS model for the Spanish public debt market

Félix

Fernández-Pérez

Rodríguez

2015

SERIEs

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Using different econometric models, Diebold and Li (J Econom 130:337-364, 2006) addressed the practical problem of forecasting the yield curve by predicting the factors level, slope and curvature in the Nelson-Siegel framework. This paper has two main aims: on the one hand, to investigate the predictive possibilities of the yield curve for the Spanish public debt market, using the methodology proposed by Diebold and Li (J Econom 130:337-364, 2006); and on the other hand, to study the capability of generating profits by transforming these yield curve predictions into technical trading strategies. The Sharpe ratios of our strategies outperform the hedging strategy benchmarks for long (1 year) horizons in our prediction period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010) and also for the current crisis period (2008)(2009)(2010). Nevertheless, these strategies do not outperform their benchmarks for short (1 month) horizons. The introduction of nonparametric models improves the profitability of the strategies in terms of the Sharpe ratio, especially in the 1-year-ahead predictions. This finding is in line with Diebold and Li (J Econom 130:337-364, 2006), whose forecasts for long horizons are much more accurate than those of several standard benchmark models.

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Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union

Cited by 38 publications

References 29 publications

Credit rating announcements, trading activity and yield spreads: the Spanish evidence

Credit rating announcements, trading activity and yield spreads: the Spanish evidence

A Measure of Liquidity Risk in a Sovereign Debt Market

Fixed income strategies based on the prediction of parameters in the NS model for the Spanish public debt market

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