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Liquidity pull-back and predictability of government security yield volatility

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  • Chundakkadan, Radeef
  • Sasidharan, Subash

Abstract

This paper investigates the relationship between the volatility of government bond yields and liquidity using daily data. We introduce a novel measure of liquidity called Repo Spread created from Reserve Bank of India's recent liquidity operation called Term Repo Operation. The result indicates that liquidity variable has significant explanatory power on the volatility of security yields. Further, we find Repo Spread has significant predictive power on the volatility of government security yields.

Suggested Citation

  • Chundakkadan, Radeef & Sasidharan, Subash, 2019. "Liquidity pull-back and predictability of government security yield volatility," Economic Modelling, Elsevier, vol. 77(C), pages 124-132.
    • Handle: RePEc:eee:ecmode:v:77:y:2019:i:c:p:124-132
    DOI: 10.1016/j.econmod.2018.07.018
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    Cited by:

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    4. Saksham Sood & Bichitrananda Seth & Samir Ranjan Behera & Deba Prasad Rath, 2024. "Asymmetric Impact of Monetary Policy on 10-Year G-Sec Yield in India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(3), pages 615-629, September.

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    More about this item

    Keywords

    Liquidity; Volatility; Government securities; Forecasting;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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