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Volatility Linkage of Nominal and Index-linked Bond Returns: A Multivariate BEKK-GARCH Approach

Noureddine Benlagha ()

Review of Economics & Finance, 2014, vol. 4, 49-60

Abstract: This paper investigates the behavior of volatility linkage between nominal and indexlinked bond returns using a multivariate BEKK-GARCH approach. Based on daily return data for French bonds with different maturity dates and different reference indices, our analysis reveals two empirical regularities. First, the relationship, in uncertainty, between nominal and index-linked bond returns is strongly significant and is mostly due to the liquidity risk. Second, the co-persistence in volatility returns for the studied bonds is also confirmed. This empirical study provides a useful method that may be employed by decision makers to quantitatively manage and reallocate their portfolios.

Keywords: Index-linked bond; Liquidity risk; Volatility linkage; BEKK-GARCH; Co-persistence (search for similar items in EconPapers)
JEL-codes: C58 G12 G32 (search for similar items in EconPapers)
Date: 2014
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