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Measuring and Analyzing Liquidity and Volatility Dynamics in the Euro-Area Government Bond Market

Author

Listed:
  • Conall O'Sullivan
  • Vassilios G. Papavassiliou

Abstract

This chapter examines the impact the European sovereign debt market crisis had on liquidity and volatility dynamics and their interdependencies in the eurozone government bond market. In particular, we examine the impact across different countries and across different maturity buckets within individual countries. A comprehensive high-frequency dataset from MTS, Europe's premier electronic fixed-income trading market, is employed to construct a variety of microstructure liquidity and volatility measures. We analyze important trends in these measures over both tranquil and crisis periods. Additionally, we study time-varying correlations as well as the intertemporal interactions of liquidity proxies with volatility and returns. Our findings provide useful insights to regulators and policy makers on the relative strengths and weaknesses of domestic and global financial systems.

Suggested Citation

  • Conall O'Sullivan & Vassilios G. Papavassiliou, 2019. "Measuring and Analyzing Liquidity and Volatility Dynamics in the Euro-Area Government Bond Market," Open Access publications 10197/9299, Research Repository, University College Dublin.
    • Handle: RePEc:rru:oapubs:10197/9299
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    File URL: http://hdl.handle.net/10197/9299
    File Function: Open Access version, 2019
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    Cited by:

    1. Iraklis Kollias & John Leventides & Vassilios G. Papavassiliou, 2024. "On the solution of games with arbitrary payoffs: An application to an over‐the‐counter financial market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1877-1895, April.
    2. Kinateder, Harald & Papavassiliou, Vassilios G., 2019. "Sovereign bond return prediction with realized higher moments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 53-73.
    3. O’Sullivan, Conall & Papavassiliou, Vassilios G., 2020. "On the term structure of liquidity in the European sovereign bond market," Journal of Banking & Finance, Elsevier, vol. 114(C).
    4. O’Sullivan, Conall & Papavassiliou, Vassilios G. & Wafula, Ronald Wekesa & Boubaker, Sabri, 2024. "New insights into liquidity resiliency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 90(C).
    5. B M, Lithin & chakraborty, Suman & iyer, Vishwanathan & M N, Nikhil & ledwani, Sanket, 2022. "Modeling asymmetric sovereign bond yield volatility with univariate GARCH models: Evidence from India," MPRA Paper 117067, University Library of Munich, Germany, revised 05 Jan 2023.
    6. Linas Jurksas & Deimante Teresiene & Rasa Kanapickiene, 2021. "Liquidity Spill-Overs in Sovereign Bond Market: An Intra-Day Study of Trade Shocks in Calm and Stressful Market Conditions," Economies, MDPI, vol. 9(1), pages 1-22, March.
    7. Papavassiliou, Vassilios G. & Kinateder, Harald, 2021. "Information shares and market quality before and during the European sovereign debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).

    More about this item

    Keywords

    Eurozone crisis; Financial contagion; Liquidity-volatility spillovers; Bond markets;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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