The Structure and Degree of Dependence in Government Bond Markets

Journal of International Financial Markets, Institutions and Money , https://doi.org/10.1016/j.intfin.2021.101385

69 Pages Posted: 16 Jul 2021 Last revised: 20 Jun 2022

See all articles by Nebojsa Dimic

Nebojsa Dimic

University of Vaasa

Vanja Piljak

University of Vaasa - Department of Accounting and Finance

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Milos Vulanovic

EDHEC Business School

Date Written: July 14, 2021

Abstract

Our study provides new evidence on asymmetric dependencies in international government bond markets, by examining bonds from developed, emerging, and frontier countries, using a quantile regression methodology. We find that the dependence structure for emerging and frontier markets significantly changes during financial crisis periods, which we show has important implications for international diversification of investment strategies. Moreover, we also examine in detail stock-bond correlations and uncover several instances of decoupling. In contrast, developed markets exhibit a more stable dependence pattern. In addition, we document that the degree and structure of dependence vary when foreign currencies are hedged or unhedged, and across bond maturity segments.

Keywords: Dependence structure, Emerging and frontier markets, Quantile regression, Sovereign bonds, Financial crisis

JEL Classification: G1, G15

Suggested Citation

Dimic, Nebojsa and Piljak, Vanja and Swinkels, Laurens and Vulanovic, Milos, The Structure and Degree of Dependence in Government Bond Markets (July 14, 2021). Journal of International Financial Markets, Institutions and Money , https://doi.org/10.1016/j.intfin.2021.101385, Available at SSRN: https://ssrn.com/abstract=3886486 or http://dx.doi.org/10.2139/ssrn.3886486

Nebojsa Dimic

University of Vaasa ( email )

Wolffintie 34
Vaasa, 65200
Finland

Vanja Piljak

University of Vaasa - Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Quantitative Investments ( email )

Rotterdam, 3000
Netherlands
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

Milos Vulanovic

EDHEC Business School ( email )

24, avenue Gustave Delory
CS 50411
Roubaix, 59057
France

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