Measuring and Analyzing Liquidity and Volatility Dynamics in the Euro-Area Government Bond Market

Conall O’ Sullivan and Vassilios Papavassiliou

Chapter 15 in Handbook of Global Financial Markets:Transformations, Dependence, and Risk Spillovers, 2019, pp 361-400 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the impact the European sovereign debt market crisis had on liquidity and volatility dynamics and their interdependencies in the eurozone government bond market. In particular, we examine the impact across different countries and across different maturity buckets within individual countries. A comprehensive high-frequency dataset from MTS, Europe’s premier electronic fixed-income trading market, is employed to construct a variety of microstructure liquidity and volatility measures. We analyze important trends in these measures over both tranquil and crisis periods. Additionally, we study time-varying correlations as well as the intertemporal interactions of liquidity proxies with volatility and returns. Our findings provide useful insights to regulators and policymakers on the relative strengths and weaknesses of domestic and global financial systems.

Keywords: Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets (search for similar items in EconPapers)
JEL-codes: F37 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Measuring and Analyzing Liquidity and Volatility Dynamics in the Euro-Area Government Bond Market (2019)
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