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Excess volatility and market efficiency in government bond markets: the ASEAN-5 context

Author

Listed:
  • Kin-Boon Tang

    (The University of Nottingham Malaysia)

  • Shao-Jye Wong

    (The University of Nottingham Malaysia)

  • Shih-Kuei Lin

    (National Chengchi University)

  • Szu-Lang Liao

    (National Chengchi University)

Abstract

This study examines the presence of excess volatility and market efficiency in government bond markets of ASEAN-5 member countries. The individual country-level bond volatility is verified using an AR-GARCH model with a multivariate extension of panel approach to examine the effects of international diversification. Wavelet coherence is employed to present visually the co-movement between the bond prices in a time–frequency space. The empirical results indicate that the presence of excess volatility is found in all countries. In addition, the findings from the panel analysis reveal evidence of market inefficiency in government bonds but lower excess volatility in the 10-year bond. There is also a large difference of magnitude in excess volatility, suggesting that the ASEAN-5 bond market is inefficient in individual markets. Excess volatility is less persistent regionally with low correlations, implying that balanced portfolios would greatly benefit from international diversifications. The results from the wavelet coherence analysis imply that investment in ASEAN bond prices may yield lower risk reduction for long horizon.

Suggested Citation

  • Kin-Boon Tang & Shao-Jye Wong & Shih-Kuei Lin & Szu-Lang Liao, 2020. "Excess volatility and market efficiency in government bond markets: the ASEAN-5 context," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 154-165, March.
    • Handle: RePEc:pal:assmgt:v:21:y:2020:i:2:d:10.1057_s41260-020-00154-5
    DOI: 10.1057/s41260-020-00154-5
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    1. Liu, Min, 2022. "The driving forces of green bond market volatility and the response of the market to the COVID-19 pandemic," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 288-309.

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    More about this item

    Keywords

    Excess volatility; Efficient market hypothesis; Government bonds; Panel analysis; Wavelet coherence;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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