Volatility Forecasting in European Government Bond Markets

Ali Gencay Ozbekler, Alexandros Kontonikas () and Athanasios Triantafyllou

Essex Finance Centre Working Papers from University of Essex, Essex Business School

Abstract: In this paper we examine the predictive power of the Heterogeneous Autoregressive (HAR) model on Treasury bond return volatility of major European government bond markets. The HAR-type volatility forecasting models show that short term and medium term volatility is a robust and statistically significant predictor of the term structure of intradayvolatility of bonds with maturities ranging from 1-year up to 30-years. When decomposing volatility into its continuous and discontinuous (jump) component, we find that the jump tail risk component is a significant predictor of bond market volatility. We lastly show that approximately half of the monetary policy announcement dates coincide with the presence of jumps in bond returns, and the pre-announcement drift is present in the bond market. Hence, the monetary policy announcements are important determinant of European bond market volatility.

Keywords: Treasury Bonds; Jumps; Realized Volatility; Macroeconomic Announcements; Volatility Forecasting (search for similar items in EconPapers)
Date: 2020-04-24
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Journal Article: Volatility forecasting in European government bond markets (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:esy:uefcwp:27362

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