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A Conditional Assessment of the Relationships between the Major World Bond Markets
Author(s) -
Hunter Delroy M.,
Simon David P.
Publication year - 2005
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1354-7798.2005.00293.x
Subject(s) - bond market , government bond , diversification (marketing strategy) , volatility (finance) , bond , equity (law) , economics , financial economics , monetary economics , bond market index , corporate bond , business , finance , marketing , political science , law
Abstract This paper uses a bivariate GARCH framework to examine the lead‐lag relations and the conditional correlations between 10‐year US government bond returns and their counterparts from the UK, Germany, and Japan. We find that while mean and volatility spillovers exist between the major international bond markets, they are much weaker than those between equity markets. The results also indicate that the correlations between the US and other major bond market returns are time varying and are driven by changing macroeconomic and market conditions. However, in contrast to the finding that the benefits of international diversification in equity markets evaporate during high‐stress periods, we find that the benefits of diversification across major government bond markets do not decrease during periods of extremely high bond market volatility or following extremely negative US and foreign bond returns.