The Impact of News and the SMP on Realized (Co)Variances in the Eurozone Sovereign Debt Market

45 Pages Posted: 2 Jun 2014

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Frank De Jong

Tilburg University - Department of Finance

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute

Daniel Widijanto

BNG Vermogensbeheer

Multiple version iconThere are 2 versions of this paper

Date Written: February 2014

Abstract

We use realized variances and covariances based on intraday data from Eurozone sovereign bond market 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 raises the volatility of interest rates of financially distressed countries and decreases the covariance of distressed countries' yields with German bond yields, suggesting a flight-to-quality effect. Common news about the euro crisis and news about specific countries itself 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 flight-to-safety from the distressed countries to Germany.

Keywords: crisis, Eurozone, realized covariances, SMP, sovereign debt, spillovers

JEL Classification: E62, G01, G12, G15, H63

Suggested Citation

Beetsma, Roel M. W. J. and De Jong, Frank and Giuliodori, Massimo and Widijanto, Daniel, The Impact of News and the SMP on Realized (Co)Variances in the Eurozone Sovereign Debt Market (February 2014). CEPR Discussion Paper No. DP9803, Available at SSRN: https://ssrn.com/abstract=2444802

Roel M. W. J. Beetsma (Contact Author)

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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Frank De Jong

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
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Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
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Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Daniel Widijanto

BNG Vermogensbeheer ( email )

Koninginnegracht 2,
2514 AA The Hague
Netherlands

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