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Liquidity pull-back and predictability of government security yield volatility

Radeef Chundakkadan () and Subash Sasidharan ()

Economic Modelling, 2019, vol. 77, issue C, 124-132

Abstract: This paper investigates the relationship between the volatility of government bond yields and liquidity using daily data. We introduce a novel measure of liquidity called Repo Spread created from Reserve Bank of India's recent liquidity operation called Term Repo Operation. The result indicates that liquidity variable has significant explanatory power on the volatility of security yields. Further, we find Repo Spread has significant predictive power on the volatility of government security yields.

Keywords: Liquidity; Volatility; Government securities; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 G12 G1 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:77:y:2019:i:c:p:124-132

DOI: 10.1016/j.econmod.2018.07.018

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