Nonlinear spillovers between euro area sovereign bond markets

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 ʺpureʺ 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 ʺperipheryʺ 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 ʺcoreʺ euro area decoupled from the ʺperipheryʺ 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

borze;obveznice;finančna kriza;ekonometrični modeli;EU;

Data

Language:	English
Year of publishing:	2015
Typology:	1.01 - Original Scientific Article
Organization:	UM EPF - Faculty of Economics and Business
UDC:	336.763
COBISS:	12022556
ISSN:	2071-789X
Views:	788
Downloads:	284
Average score:	0 (0 votes)
Metadata:

Other data

Secondary language:	Slovenian
Secondary keywords:	borze;obveznice;finančna kriza;ekonometrični modeli;EU;državni obvezniški trgi;spillover;nelinearni test vzročnosti Grangerja;
URN:	URN:SI:UM:
Type (COBISS):	Scientific work
Pages:	str. 28-40
Volume:	ǂVol. ǂ8
Issue:	ǂno. ǂ1
Chronology:	2015
DOI:	10.14254/2071-789X.2015/8-1/3
ID:	9141950