Investigating Volatility Transmissions among Sovereign Bonds in African and Emerging Markets Using Multivariate GARCH Models

Debalke, Negash Mulatu (2023): Investigating Volatility Transmissions among Sovereign Bonds in African and Emerging Markets Using Multivariate GARCH Models.

Abstract

The study examined volatility transmissions between Ethiopia and Ghana's sovereign bonds and emerging markets. Five Multivariate GARCH models were estimated using time series price indices. AIC and BIC criteria identified the VCC-MGARCH model as the best. The result shows own-volatility spillovers are higher than cross-volatility spillovers. In addition, it confirms cross-spillovers were unidirectional, from emerging markets to Ethiopia, with no significant spillover to Ghana. There is no bidirectional volatility spillover. Both Ethiopia and Ghana exhibit significant ARCH and GARCH effects, emphasizing the importance of addressing past variations and squared returns in volatility management. Significant adjustment parameters suggest that deviations from long-term equilibrium are corrected, indicating the markets’ stability mechanisms. Thus, policymakers should monitor these mechanisms for market stability. Finally, policy implications emphasize monitoring and managing external influences, addressing market dynamics persistence, and implementing policies to reduce excessive volatility.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sovereign Bond; Ethiopia; Ghana; Africa; Emerging Markets; Return; Volatility; Spillover; M-GARCH.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy; F - International Economics > F6 - Economic Impacts of Globalization > F65 - Finance

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