Balli, Faruk (2008): Spillover Effects on Government Bond Yields in Euro Zone. Does Full Financial Integration Exist in European Government Bond Markets? Forthcoming in: Journal of Economics and Finance
Download (637kB) | Preview
This paper examines the time varying nature of European government bond market integration by employing multivariate GARCH models. We state that unlike other bond markets, in euro markets the default(credit) risk factor and other macroeconomic and fiscal indicators are not able to explain the sovereign bond yields after the beginning of monetary union. This fact might be counted as a signal for perfect financial integration. However, we also find that the global shocks affect Germany and the rest of euro bond markets in various levels, creating particular discrepancies in asset prices even we take into account the market specific factors. Different level responses of each euro market to the global shocks reveal that euro bond markets are not fully integrated with each other unlike the recent literature claimed. Besides, we explore that the global factors are effective for the volatility of yield differentials among euro government bonds.
|Item Type:||MPRA Paper|
|Original Title:||Spillover Effects on Government Bond Yields in Euro Zone. Does Full Financial Integration Exist in European Government Bond Markets?|
|Keywords:||Financial Integration, Multivariate GARCH models. Euro Bond Markets, Spillover Effects, Asset Pricing|
|Subjects:||F - International Economics > F1 - Trade > F15 - Economic Integration
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates
|Depositing User:||Faruk Balli|
|Date Deposited:||26. Aug 2008 08:00|
|Last Modified:||13. Mar 2015 09:36|
Aggarwal, R., Lucey B. and Muckley C. (2004). “Dynamics of equity market integration in Europe. Evidence of changes over time and with events.” The Institute for International Integration Studies, Discussion Paper Series:019.
Barr, D.G. and Priestley R. (2004). “Expected returns, risk and the integration of international bond markets,” Journal of International Money and Finance, 23, 71–97.
Beckaert, G., Harvey C. R. and Ng A. (2005). “Market integration and contagion,” Journal of Business, 78, 39–69.
Berndt, E. R., Hall, B. H., Hall, R. E. and Hausman J. A. (1974). “Estimation and inference in nonlinear structural models,” Annals of Economics and Social Measurement, 3, 653-66.
Blanco, R. (2001). “The Euro-area government securities markets: recent developments and implications for market functioning,” Banco de Espaa, Servicio de Estudios, Working Paper 0120.
Bollerslev, T. (1986). “Generalized autoregressive conditional heteroskedasticity,” Journal of Econometrics, 31(5), 307–27.
Bomfim, A. N. (2003). “Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market,” Journal of Banking and Finance, 27, 133–151.
Christiansen, C. (2007). “ Volatility-spillover effects in European bond markets,” European Financial Management, 13, 923–948.
Codogno, L., Favero C. and Missale A. (2003). “EMU and government bond spreads,” Economic Policy, vol.18, 503–532.
Dickey, D. and Fuller W.A. (1979). “Distributions of the estimators for autoregressive time series with a unit root,” Journal of the American Statistical Association, 74, 427–431.
Dungey, M., Martin V.L. and Pagan A.P. (2000). “A multivariate latent factor decomposition of international bond yield spreads,” Journal of Applied Econometrics, 15, 697–715.
Driessen, J., Melenberg, B. and Nijman T. (2003). “Common factors in international bond returns,” Tilburg University, Center for Economic Research Discussion Paper.
Engle, R. F. (1982). “Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation,” Econometrica, 50, 987-1006.
Engle, R. F. and Kroner K.F. (1995). “Multivariate simultaneous generalized ARCH,” Econometric Theory, 11, 122–150. Engle, R. F., Li, L. (1998). “Macroeconomic announcements and volatility of treasury futures,”University of California San Diego Working Paper.
Erb C.B., Harvey C.R., Viscanta, T.E. (2004) “Understanding emerging market bonds,” Emerging Markets Quarterly, 4, 7–23.
Favero, C.A., Pagano M., and Von Thadden, E.-L. (2005). Valuation, liquidity and risk in government bond markets, IGIER Working Paper no:281.
Flannery, M.J. and Protopapadakis A.A. (2002). “Macroeconomic factors do influence aggregate stock returns,” Review of Financial Studies, 15, 751-782.
Folkerts-Landau, D., Mathieson D.J., Schinasi G.(1997) “International capital markets developments, prospects, and key policy issues. IMF Staff Working Paper November 1997.
Fratzscher, M. (2002). “Financial market integration in Europe: on the effects of EMU on stock markets,” International Journal of Finance and Economics,7(3), 165–193.
Geyer, A., Kossmeier. S., Pinchler, S. (2004) “ Measuring systematic risk in EMU government yield spreads,” Review of Finance 8(2), 171–197.
Kamin, S.B. and von Kleist K. (1999). “The evolution and determinants of emerging market credit spreads in the 1990s,” Board of Governors of the Federal Reserve System, International Finance Discussion Paper No:653, November.
Kim, S. J., Moshirian F., and Wu E. (2006). “Evolution of international stock and bond market integration: Influence of the European monetary union,” Journal of Banking and Finance, 30(5), 1507–1534.
Pagano M. and Von-Thadden E. L. (2004). “The European bond markets under EMU,” Oxford Review of Economic Policy, 20, 531-554.