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Volatility Forecasting in European Government Bond Markets

Özbekler, Ali Gencay and Kontonikas, Alexandros and Triantafyllou, Athanasios (2020) Volatility Forecasting in European Government Bond Markets. Working Paper. Essex Finance Centre Working Papers, Colchester. (Unpublished)

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Abstract

In this paper we examine the predictive power of the Heterogeneous Autoregressive (HAR) model on Treasury bond return volatility of major European government bond markets. The HAR-type volatility forecasting models show that short term and medium term volatility is a robust and statistically significant predictor of the term structure of intradayvolatility of bonds with maturities ranging from 1-year up to 30-years. When decomposing volatility into its continuous and discontinuous (jump) component, we find that the jump tail risk component is a significant predictor of bond market volatility. We lastly show that approximately half of the monetary policy announcement dates coincide with the presence of jumps in bond returns, and the pre-announcement drift is present in the bond market. Hence, the monetary policy announcements are important determinant of European bond market volatility.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Treasury Bonds, Jumps, Realized Volatility, Macroeconomic Announcements, Volatility Forecasting
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 24 Apr 2020 14:39
Last Modified: 25 Mar 2021 12:15
URI: http://repository.essex.ac.uk/id/eprint/27362

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