Explaining Municipal Bond Volatility: Implications for Practice

S. Lakshmivarahan and Duane R. Stock

Municipal Finance Journal, 2006, vol. 27, issue 1, 1 - 33

Abstract: This article explores and analyzes reasons why volatility behavior is different for different maturities and credit qualities. It models the yield volatilities of various maturities of AAA and BBB municipal bonds based on two theories of volatility. One theory is that the higher the level of interest rates, the greater the volatility. A second, more statistically complex theory, is built on the observation that periods of high volatility are caused by significant economic “news” affecting interest rates. We find that asymmetric volatility effects vary by maturity and credit quality and that there is some limited ability to predict yield changes. For example, we find strong evidence of mean reversion in yields for some maturities and credit qualities.

Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1086/MFJ27010001 (application/pdf)
http://dx.doi.org/10.1086/MFJ27010001 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
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:ucp:munifj:doi:10.1086/mfj27010001

Access Statistics for this article

More articles in Municipal Finance Journal from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().