Suchergebnisse

This paper studies the intraday volatility of European government bonds under the framework of the multiplicative component GARCH model (Engle and Sokalska, 2012). Intraday return volatility is specified as the product of daily volatility, intraday seasonality, and a unit GARCH process. The model is applied to 10-year European government bonds during the sovereign debt crisis. We observe large transitory intraday volatility often due to illiquidity effects and outliers. We suggest a flexible and effective procedure for jointly filtering mid-quote prices and estimating volatility models. Finally, we show that intraday data contain relevant information for daily volatility forecasts.

Using a novel dataset, we study intraday trades of overnight general collateral repurchase agreements (repos) on Italian government bonds. We focus both on repos cleared by central counterparties (CCPs) and traded bilaterally. Intraday bond supply, liquidity and duration significantly affect the spread of repo rates over the European Central Bank (ECB) deposit rate, but after the ECB quantitative easing interventions this impact is much reduced. During the European sovereign debt crisis, the increase in margins further deteriorates repo costs, creating a negative procyclical effect. Once we control for the impact of margin costs, CCP-based repos do not appear to be significantly cheaper than bilateral repos. We also show that bonds with lower liquidity and specialness, greater supply and longer duration are more likely to be selected as collateral. However, during the crisis, CCP-repo borrowers choose collateral bonds with higher liquidity and lower duration to reduce margin and repo trading costs

Using a rich dataset of high frequency historical information from 2004 to 2013 we study the determinants of European sovereign bond returns over calm and crisis periods. We find that the sign of the equity beta crucially depends on country risk. In low risk countries, government bonds represent a natural hedge against equity risk as the equity beta is negative regardless of market conditions. On the other hand, government bonds of high risk countries lose their "safe-asset" status and exhibit more equity-like behaviour during the sovereign debt crisis, with positive and strongly significant co-movements relative to the stock market. Our estimates indicate that the equity beta switches from negative to positive when a sovereign's credit spread rises above 2%. We find that the decoupling of the government bond market between high risk and low risk countries implies that indiscriminate portfolio diversification does not pay. Instead, "prudent diversification" appears to offer superior risk adjusted returns in periods of sovereign stress and through the economic cycle.

Using a rich dataset of high frequency historical information from 2004 to 2013 we study the determinants of European sovereign bond returns over calm and crisis periods. We find that the sign of the equity beta crucially depends on country risk. In low risk countries, government bonds represent a natural hedge against equity risk as the equity beta is negative regardless of market conditions. On the other hand, government bonds of high risk countries lose their "safe-asset" status and exhibit more equity-like behaviour during the sovereign debt crisis, with positive and strongly significant co-movements relative to the stock market. Our estimates indicate that the equity beta switches from negative to positive when a sovereign's credit spread rises above 2%. We find that the decoupling of the government bond market between high risk and low risk countries implies that indiscriminate portfolio diversification does not pay. Instead, "prudent diversification" appears to offer superior risk adjusted returns in periods of sovereign stress and through the economic cycle.