Volatility in EMU sovereign bond yields: permanent and transitory components

Simon Sosvilla-Rivero and Amalia Morales-Zumaquero

Applied Financial Economics, 2012, vol. 22, issue 17, 1453-1464

Abstract: This article explores the evolving relationship in the volatility of sovereign yields in the European Economic and Monetary Union (EMU). To that end, we examine the behaviour of daily yields for 11 EMU countries (EMU-11), during the period 2001--2010. In a first step, we decompose volatility in permanent and transitory components using Engel and Lee's (1999) Component-Generalized Autoregressive Conditional Heteroscedasticity (C-GARCH) model. Results suggest that transitory shifts in debt market sentiment tend to be less important determinants of bond-yield volatility than shocks to the underlying fundamentals. In a second step, we develop a correlation and causality analysis that indicates the existence of two different groups of countries closely linked: core EMU countries and peripheral EMU countries. Finally, in a third step, we make a cluster analysis that further supports our results regarding the existence of two different groups of countries, with different positions regarding the stability of public finance.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2012.661397 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Volatility in EMU sovereign bond yields: Permanent and transitory components (2011)
Working Paper: Volatility in EMU sovereign bond yields: Permanent and transitory components (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:22:y:2012:i:17:p:1453-1464

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2012.661397

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().