Causality-in-Variance and Causality-in-Mean among European Government Bond Markets

Abstract

This paper examines causality in volatility spillover (causality-in-variance) for the six major European government bond markets. Using tests of temporal causality and directed acyclic graphs, we find evidence of contemporaneous causality-in-variance, indicating that volatility spillover in the government bond markets is a short-lived phenomenon. However, we find no evidence of contemporaneous causality-in-mean for bond index returns. The tests reveal that the markets are bi-directionally linked, and reasonably well integrated.

Keywords: Bond, Causality-in-variance, Directed Acyclic Graphs, DAG, Volatility Spillover

JEL Classification: G15, C32