Time-scale analysis of sovereign bonds market co-movement in the EU

Filip Smolik and Lukas Vacha

No 44, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: We study co-movement of 10-year sovereign bond yields of 11 EU countries. Our analysis is focused mainly on changes of co-movement in the crisis period, especially near two significant dates - the fall of Lehman Brothers, September 15, 2008, and the announcement of increase of Greek's public deficit in October 20, 2009. We study co-movement dynamics using wavelet analysis, it allows us to observe how co-movement changes across scales, which can be interpreted as investment horizons, and through time. We divide the countries into three groups; the Core of the Eurozone, the Periphery of the Eurozone and the states outside the Eurozone. Results indicate that co-movement considerably decreased in the crisis period for all countries pairs, however there are significant differences among the groups. Furthermore, we demonstrate that co-movement of bond yields significantly varies across scales.

Keywords: financial crisis; co-movement; wavelet; sovereign debt crisis; sovereign bonds (search for similar items in EconPapers)
JEL-codes: C32 C49 C58 H63 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eec and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:44

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