Realized (co)variances of eurozone sovereign yields during the crisis: The impact of news and the Securities Markets Programme

R.M.W.J. Beetsma, Frank de Jong, M. Giuliodori, D. Widijanto

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We use realized variances and covariances based on intraday data to measure the dependence structure of eurozone sovereign yields. Our analysis focuses on the impact of news, obtained from the Eurointelligence newsflash, on the dependence structure. More news tends to raise the volatility of yields of financially-distressed countries and to decrease the covariance of distressed countries’ yields with German bond yields, suggesting a potential flight-to-quality effect. Common news about the euro crisis and news about specific countries tend to raise the covariance of yields between distressed countries, indicating potential crisis spill-over effects. However, we do not detect spillover effects from news about third countries to the covariance between other country pairs. Bond purchases by the ECB under its Securities Markets Programme (SMP) mitigate the negative crisis spillovers among the distressed countries and reduce the potential flight-to-quality from the distressed countries to Germany.
LanguageEnglish
Pages14-31
JournalJournal of International Money and Finance
Volume75
DOIs
StatePublished - Jul 2017

Fingerprint

Securities market
News
Euro zone
Dependence structure
Flight to quality
Spillover effects
Intraday data
Bond yields
Germany
Spillover
Euro crisis
Realized variance
Purchase

Keywords

  • eurozone
  • securities markets programme
  • crisis
  • sovereign debt
  • realized coviriances
  • spillovers

Cite this

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title = "Realized (co)variances of eurozone sovereign yields during the crisis: The impact of news and the Securities Markets Programme",
abstract = "We use realized variances and covariances based on intraday data to measure the dependence structure of eurozone sovereign yields. Our analysis focuses on the impact of news, obtained from the Eurointelligence newsflash, on the dependence structure. More news tends to raise the volatility of yields of financially-distressed countries and to decrease the covariance of distressed countries’ yields with German bond yields, suggesting a potential flight-to-quality effect. Common news about the euro crisis and news about specific countries tend to raise the covariance of yields between distressed countries, indicating potential crisis spill-over effects. However, we do not detect spillover effects from news about third countries to the covariance between other country pairs. Bond purchases by the ECB under its Securities Markets Programme (SMP) mitigate the negative crisis spillovers among the distressed countries and reduce the potential flight-to-quality from the distressed countries to Germany.",
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Realized (co)variances of eurozone sovereign yields during the crisis: The impact of news and the Securities Markets Programme. / Beetsma, R.M.W.J.; de Jong, Frank; Giuliodori, M.; Widijanto, D.

In: Journal of International Money and Finance, Vol. 75, 07.2017, p. 14-31.

Research output: Contribution to journalArticleScientificpeer-review

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