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Greek sovereign bond index, volatility, and structural breaks

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  • Go Tamakoshi
  • Shigeyuki Hamori

Abstract

This article investigates volatility changes in the 10-year Greek sovereign bond index returns using the multiple structural break test developed by Bai and Perron (Econometrica 66:47–78, 1998 , J Appl Econ 18:1–22, 2003 ), which allows for endogenous identification of break dates. We find that there exists one break date in volatility, April 2010, when the European debt crisis worsened and the Greek sovereign bond was downgraded to junk status. We also obtain evidence of performance improvement in our modeling by including structural break dummies into the variance equation. We observe sharp drops in a measure of volatility persistence after incorporating the structural change. Our findings are important for not only investors who assess the volatility of sovereign bonds for portfolio risk management, but also for policy makers who wish to understand and minimize the impacts of excess volatility on the financial system in government bond markets. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Go Tamakoshi & Shigeyuki Hamori, 2014. "Greek sovereign bond index, volatility, and structural breaks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(4), pages 687-697, October.
  • Handle: RePEc:spr:jecfin:v:38:y:2014:i:4:p:687-697
    DOI: 10.1007/s12197-013-9253-3
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    2. Tunio, Mohsin Waheed, 2023. "What Explains the Volatility in Pakistan’s Sovereign Bond Yields?," MPRA Paper 116030, University Library of Munich, Germany.
    3. Stolbov, Mikhail, 2014. "The causal linkages between sovereign CDS prices for the BRICS and major European economies," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-43.
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    8. Mariagrazia Fallanca & Antonio Fabio Forgione & Edoardo Otranto, 2021. "Do the Determinants of Non-Performing Loans Have a Different Effect over Time? A Conditional Correlation Approach," JRFM, MDPI, vol. 14(1), pages 1-15, January.
    9. 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.
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    More about this item

    Keywords

    Volatility; Greek government bond; European sovereign debt crisis; Multiple structural break test; EGARCH; C50; F30; G15;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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