The global and regional factors in the volatility of emerging sovereign bond markets

Abstract

This paper examines how much the volatility of sovereign bond markets in Latin American emerging countries is in ‡uenced by volatiliy shocks to global and regional markets. After estimating the GARCHbased conditional volatility for sample markets, we measure the parts of sovereign bond market volatility attributable to the global and regional factors within the dynamic framework of a SVAR model. We …nd signi…cant and persistent volatility spillovers from global and regional factors to sovereign bond markets with a dominant e¤ect issued by global sovereign bond market. We also evidence that the global and regional markets are, on average, responsible for more than 45% of the variance of volatility changes in three of …ve selected emerging countries over a 12-week ahead forecast horizon.

A behavioral analysis of the volatility of interbank interest rates in developed and emerging countries

“…In an analysis of the volatility ratio of sovereign debt in emerging countries and the volatility of global and regional markets, Dihn and Nguyen (2008) use the ARCH, GARCH and structural vector autoregressions (SVAR) models to find evidence that the global or regional market accounts for approximately 45 per cent of the variance of volatility changes in three of the five emerging countries selected in the study. Edwards and Susmel (2003) analyse the volatility of interest rates in a group of Latin American countries (Argentina, Brazil, Mexico and Chile) and of Hong Kong in the 1990s using a markov switching autoregressive conditional heteroscedasticity (SWARCH) model.…”

“…Some studies have used the GARCH models and their extensions to model the volatility of interest rates, such as Reilly et al (2000), Young and Johnson (2002), Young and Johnson (2005), Dihn and Nguyen (2008), Edwards and Susmel (2003), Goeu and Marquering (2004), Ke et al (2008), Wet (2006), Andritzky et al (2007) and Yang et al (2009).…”

“…In an analysis of the volatility ratio of sovereign debt in emerging countries and the volatility of global and regional markets, Dihn and Nguyen (2008) use the ARCH, GARCH and structural vector autoregressions (SVAR) models to find evidence that the global or regional market accounts for approximately 45 per cent of the variance of volatility changes in three of the five emerging countries selected in the study.…”