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Modeling intraday volatility of European bond markets: a data filtering application

Zhang, H. and Dufour, A. (2019) Modeling intraday volatility of European bond markets: a data filtering application. International Review of Financial Analysis, 63. pp. 131-146. ISSN 1057-5219

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To link to this item DOI: 10.1016/j.irfa.2019.02.002

Abstract/Summary

This paper studies the intraday volatility of European government bonds under the framework of the multiplicative component GARCH model (Engle and Sokalska, 2012). Intraday return volatility is specified as the product of daily volatility, intraday seasonality, and a unit GARCH process. The model is applied to 10-year European government bonds during the sovereign debt crisis. We observe large transitory intraday volatility often due to illiquidity effects and outliers. We suggest a flexible and effective procedure for jointly filtering mid-quote prices and estimating volatility models. Finally, we show that intraday data contain relevant information for daily volatility forecasts.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:82484
Publisher:Elsevier

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