Excess volatility pursuit in autoregressive GARCH model based panel data analysis at country level: BRICS context

Wajid Shakeel Ahmed, Muhammad Shoaib Khan, Muhammad Jibran Sheikh and Inzamam Khan

International Journal of Emerging Markets, 2021, vol. 18, issue 10, 3703-3719

Abstract: Purpose - This particular study examined the government bond price variations in order to determine the presence of excess volatility both at country and panel group level of BRICS countries context. Design/methodology/approach - The study applied the autoregressive GARCH panel model approach proposed by Fakhry and Richter (2015) to evaluate the presence of excess volatility and then examined the diversification benefits. Further, the use of discrete wavelet transformation (DWT) has added the advantage to observe volatility across bonds along with potential diversification benefits by retaining information from the time and frequency domain perspective for both the maturities. Findings - The main finding indicates that the excess volatility is present in BRICS countries at individual level i.e. in the case of Russia, India and China. However, the 10-year bond showing a less volatility compared to 5-year bond with the possibility of reaping out the benefits of diversification with international portfolio of sovereign bonds. Practical implications - The main implication of the research is related to the non-perseverance of EMH as far sovereign bonds of BRICS countries are concerned as the results indicate presence of excess volatility in the 5-year and 10-year bond markets. However, the implicit behavior of 5-year bond could benefit the active fund managers and investors by taking an advantage of a reducing systemic risk through short-medium term investments. Originality/value - This study contributes not only to the existing studies of similar nature by examining the excess volatility in bond markets but also taking account of co-moment of distinct maturities to confirm possible international diversification benefits for BRICS countries context.

Keywords: Government bonds; Excess volatility; Market efficiency; Autoregressive-GARCH panel Model; (DWT); BRICS (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-04-2021-0480

DOI: 10.1108/IJOEM-04-2021-0480

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