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1.
Nonlinear spillovers between euro area sovereign bond markets
Silvo Dajčman, 2015, original scientific article

Abstract: This paper examines nonlinear spillover effects between sovereign bond markets of six euro area countries (France, Ireland, Italy, Germany, Portugal, and Spain), four of which were among the hardest hit by the sovereign debt crisis, by applying a nonlinear Granger causality test of Diks and Panchenko (2006). The test is applied on the sovereign bond yield dynamics (i.e. yield changes) time series for the time period from 3 January 2000 - 31 August 2011. We also test for ˝pure˝ spillovers between sovereign bond yield dynamics, i.e. the spillovers after controlling for common and regional factors that impact the sovereign bond yield changes of all countries simultaneously. To verify if the nature of spillovers has changed after the start of the euro are sovereign debt crisis, we test for the nonlinear spillovers for the whole observed period and separately for the period be fore and after the start of the euro area sovereign debt crisis (period from the start of April 2010 until the end of our sample, i.e. 31 August 2011). The results of our study show that strong bi-directional Granger causality exists between the investigated sovereign bond markets. Very similar results are obtained whether the regional and world factors are or are not controlled for. We find strong bi-directional non-linear Granger causality for the investigated euro area countries prior the euro area sovereign debt crisis. After the start of the euro area sovereign debt crisis the interdependence be- tween the markets has reduced. We can no longer detect non-linear spillovers running from Germany and France to the ˝periphery˝ euro area countries. The findings of this study have important implications for the policymakers as they show that shocks spill-over quickly across the sovereign bond markets and the intensity and nature of spillovers can change throughout time. The sovereign bond markets of the ˝core˝ euro area decoupled from the ˝periphery˝ euro area sovereign bond markets after the start of euro are debt crisis. The findings are also of relevance for individual investors in the sovereign bond markets for the purpose of portfolio diversification.
Keywords: stock exchanges, bonds, financial crisis, econometric models, EU, sovereign bond markets, spillovers, non-linear Granger causality
Published: 07.08.2017; Views: 224; Downloads: 60
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2.
Asymmetric correlation of sovereign bond yield dynamics in the Eurozone
Silvo Dajčman, 2013, original scientific article

Abstract: This paper examines the symmetry of correlation of sovereign bond yield dynamics between eight Eurozone countries (Austria, Belgium, France, Germany, Ireland, Italy, Portugal, and Spain) in the period from January 3, 2000 to August 31, 2011. Asymmetry of correlation is investigated pair-wise by applying the test of Yongmiao Hong, Jun Tu, and Guofu Zhou (2007). Whereas the test of Hong, Tu, and Zhou (2007) is static, the present paper provides also a dynamic version of the test and identifies time periods when the correlation of Eurozone sovereign bond yield dynamics became asymmetric. We identified seven pairs of sovereign bond markets for which the null hypothesis of symmetry in correlation of sovereign bond yield dynamics can be rejected. Calculating rolling-window exceedance correlation, we found that the time-varying upper- (i.e. for positive yield changes) and lower-tail correlations (i.e. for negative yield changes) for pair-wise observed sovereign bond markets normally follow each other closely, yet during some time periods (for most pair-wise observed countries, these periods are around the September 11 attack on the New York City WTC and around the start of the Greek debt crisis) the difference in correlation does increase. The results show that the upper- and lower-tail correlation was symmetric before the Eurozone debt crisis for most of the pair-wise observed sovereign bond markets but has become much less symmetric since then.
Keywords: asymmetric correlation, sovereign bonds, Eurozone, financial crisis
Published: 03.08.2017; Views: 204; Downloads: 68
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