Venetis, Ioannis and Ladas, Avgoustinos (2022): Co-movement and global factors in sovereign bond yields.
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Abstract
We study the co-movement in international zero-coupon government bond yields using a recently proposed methodology by \cite{Choi2018} and \cite{Choi2021} for the estimation of multilevel factor models. We employ a readily available non-proprietary dataset coupled with open-source code which facilitates reproduction of the results but also comparability with the existing bibliography. The ten countries dataset is cross-sectionally expanded to eleven countries with newly constructed data series on the term structure of Greek constant-maturity, government zero-coupon bond rates. We find that the country pair US-Germany is most suitable as an initial candidate for global factor estimation. We confirm that three global factors account for most of the variation in zero-coupon bond yields leaving a small proportion to be (contemporaneously) explained by local factors. Global inflation and global real activity are related to the global level and slope factors. The third global factor, ``curvature'', is strongly related to economic/financial uncertainty linked to systemic risk stemming from the US financial markets.
Item Type: | MPRA Paper |
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Original Title: | Co-movement and global factors in sovereign bond yields |
Language: | English |
Keywords: | sovereign bonds; yield curve; term structure; multilevel factor model; global factors; local factors |
Subjects: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets |
Item ID: | 115801 |
Depositing User: | Ιωάννης Βενέτης |
Date Deposited: | 28 Dec 2022 14:57 |
Last Modified: | 03 Jan 2023 09:59 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/115801 |