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On the distribution of government bond returns: evidence from the EMU

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  • Christian Gabriel
  • Christian Lau

Abstract

This paper assesses the statistical distribution of daily EMU bond returns for the period 1999–2012. The normality assumption is tested and clearly rejected for all European countries and maturities. Although skewness plays a minor role in this departure from normality, it is mainly due to the excess kurtosis of bond returns. Therefore, we test the Student’s t, skewed Student’s t, and stable distribution that exhibit this feature. The financial crisis leads to a structural break in the time series. We account for this and retest the alternative distributions. A value-at-risk application underlines the importance of our findings for investors. In sum, excess kurtosis in bond returns is essential for risk management, and the stable distribution captures this feature best. Copyright Swiss Society for Financial Market Research 2014

Suggested Citation

  • Christian Gabriel & Christian Lau, 2014. "On the distribution of government bond returns: evidence from the EMU," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(2), pages 181-203, May.
    • Handle: RePEc:kap:fmktpm:v:28:y:2014:i:2:p:181-203
    DOI: 10.1007/s11408-014-0228-y
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    3. Marzia De Donno & Riccardo Donati & Gino Favero & Paola Modesti, 2019. "Risk estimation for short-term financial data through pooling of stable fits," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 33(4), pages 447-470, December.

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    More about this item

    Keywords

    Bond return distributions; EMU; Excess kurtosis ; Government bonds; Non-normality; C46; G12; G15; H81;
    All these keywords.

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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