Linkages in the term structure of interest rates across sovereign bond markets

Subramaniam, Sowmya; Prasanna, Krishna; Bhaduri, Saumitra N.

doi:10.1016/j.ememar.2016.05.001

Cited by 28 publications

(21 citation statements)

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“…They evidenced the real interest rate parity condition mostly holds. Sowmya et al (2016) analyzed the size and direction of spillover in sovereign bond yields across different maturities for the advanced and Asian countries. They found spillover is higher with a long-term rate than with short-term rates.…”

Section: Related Literaturementioning

confidence: 99%

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2020

Asian Development Policy Review

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This study measures the extent of crosscountry financial shock spillover by utilizing Diebold and Yilmaz (2009); Diebold and Yilmaz (2012) method and using the impulse response function of the VAR model, it explores the important channel through which financial shocks transmit among the US, Japan, Germany, China, India, and Russia. The result shows that total financial shock spillover is 43.60%, indicating that slightly more than two-fifths of the total variance of the forecast errors for six countries under consideration is explained by their shock spillover across countries. The finding is observed to be robust. Using the impulse response of the VAR model, we examined the relative importance of channels viz. financial, exchange rate, and trade. We observed that 46% of external financial shocks transmit to US through the financial channel, while it is predominantly the trade channel through which shocks transmit to Japan (43%), Germany (43%), and China (76%). India receives major shocks (74%) through exchange rate. Finally, trade and financial channels are important for Russia through which 76% of shocks come from external financial markets. The spillover is observed to be high which could be because of the increasing deregulation of financial markets including capital mobility in 21 st century. Contribution/ Originality: This study contributes in four ways: (i) it considers both advanced and emerging economies, (ii) captures financial shocks through composite interest rate index (IRI), (iii) employs spillover method developed by Diebold and Yilmaz (2009); Diebold and Yilmaz (2012) and (iv) examines the contribution of channels which previous literature did not address. 1. INTRODUCTION The crosscountry financial shock spillover remains alive in the history of global economy. For instance, the Asian Financial Crisis (1997-98) and the Global Financial Crisis (2007-09) 1 had the genesis in specific regions and 1 Asian Financial Crisis (1997-98) alternatively called as Asian Contagion defined as a sequence of currency devaluation and other follow up of economic events that stared in 1997 and impacted many countries. Global Financial Crisis (2007-09) began in 2007 from subprime mortgage market in the USA and took the turn of a great depression of 1930's. It advanced into fullblown global banking crisis with the collapse of the Lehman Brother's Investment Bank in 2008.

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Section: Related Literaturementioning

confidence: 99%

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Asian Development Policy Review

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“…The marginal variation in empirical results between two models is for the following reasons; (i) latter model (index-based model) is based on a composite index which captures a broader picture of spillover, and (ii) spillover is higher with long terms bond yield price which incorporated in the latter model. Sowmya, Prasanna, and Bhaduri (2016) strongly said that spillover is higher with long term bond yield compared to short term bond yield because the long-term rates are influenced by the preference of global investors and the global financial conditions.…”

Section: Robustness Checkmentioning

confidence: 99%

Spillover of Financial Innovations during Covid-19: A Cross-Country Analysis

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2020

Asian Development Policy Review

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“…The study by Sowmya, Prasanna, and Bhaduri (2016) examined the magnitude and direction of linkages in sovereign bond yields across a spectrum of different maturities for industrialized countries and the Asian countries. They found that spillover is higher with long term rates than the short-term rates.…”

Section: Review the Literaturementioning

confidence: 99%

“…Thus, a large number of scholars such as Monadjemi (1997); Ciner (2011); Căpraru and Ihnatov (2012); Hassler and Werkmann (2012); Chang and Su (2015), and Caporale et al (2017) have focused on advanced economies and have ignored interest rate spillover between advanced and emerging countries. Their breakdown unified only shortterm interest rate or single terms of interest rate in exploring the cross-country linkages except the studies by Hassler and Werkmann (2012) and Sowmya et al (2016) who tried to analyze various maturities of interest rates. Only a few studies expanded the analysis from advanced economies to emerging economies or the relationship between them.…”

Section: Review the Literaturementioning

confidence: 99%

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2020

Asian Journal of Empirical Research

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Linkages in the term structure of interest rates across sovereign bond markets

Cited by 28 publications

References 40 publications

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Spillover of Financial Innovations during Covid-19: A Cross-Country Analysis

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