Volatility Forecasting in European Government Bond Markets

In this paper we examine the predictive power of the Heterogeneous Autoregressive (HAR)model for the return volatility of major European government bond markets. Results fromHAR-type volatility forecasting models show that past short and medium-term volatilityare significant predictors of the term structure of intraday volatility of European bondswith maturities ranging from 1-year up to 30-years. When we decompose bond marketvolatility into its continuous and discontinuous (jump) component, we find that the jumpcomponent is a significant predictor. Moreover, we show that feedback from past short-term volatility to the forecast of future volatility is stronger in days that precede monetarypolicy announcements.