Dynamic linkages between EU bond markets
González Correia, Mariana (2013)
González Correia, Mariana
2013
Kuvaus
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Tiivistelmä
The literature on dynamic linkages between the financial markets is mostly concentrated in the equity markets rather than the bond markets. Thus, the purpose of this thesis is to examine the dynamic linkages between the EMU bond markets for the period pre- and post-EU sovereign debt crisis. The EMU countries included in this study are: Germany, Greece, Ireland, Italy, Portugal and Spain.
The methodology employed has the following design: Unit root testing, Johansen Cointegration approach, VECM, Granger Causality and VEC Granger causality/block exogeneity wald test. In addition, yield spreads analysis and correlations are included.
The findings confirm that the EU sovereign bond markets are cointegrated during the sample period; however, there is no evidence of an unique common trend among all markets. An increasing pressure against financial integration of the sovereign bond markets is identified. The number of bi-directional causality relationships decrease while the uni-directional causality increased on the second sub-period. There is a shift of short and long-run relationships, correlations and volatility over the sample period. Also, a flight-to-safety and liquidity premium enjoyed by Germany is evident. Furthermore, portfolio returns are limited but still achievable.
The methodology employed has the following design: Unit root testing, Johansen Cointegration approach, VECM, Granger Causality and VEC Granger causality/block exogeneity wald test. In addition, yield spreads analysis and correlations are included.
The findings confirm that the EU sovereign bond markets are cointegrated during the sample period; however, there is no evidence of an unique common trend among all markets. An increasing pressure against financial integration of the sovereign bond markets is identified. The number of bi-directional causality relationships decrease while the uni-directional causality increased on the second sub-period. There is a shift of short and long-run relationships, correlations and volatility over the sample period. Also, a flight-to-safety and liquidity premium enjoyed by Germany is evident. Furthermore, portfolio returns are limited but still achievable.