We propose to adopt high-frequency DCC-MIDAS models to estimate high- and low-frequency correlations in the 10-year government bond spreads for Belgium, France, Italy, the Netherlands, and Spain relative to Germany, from June 1, 2007 to May 31, 2012. The high-frequency component, reflecting financial market conditions, is evaluated at 15-minute frequency, while the low-frequency component, fixed through a month, depends on country-specific macroeconomic conditions. We find strong links between spreads volatility and worsening macroeconomic fundamentals; in presence of similar macroeconomic fundamentals relative spreads move together; the increasing correlation in spreads during the burst of the sovereign debt crisis cannot be entirely ascribed to macroeconomic factors but rather to changes in market liquidity.

(2016). High- and low-frequency correlations in European government bond spreads and their macroeconomic drivers [journal article - articolo]. In JOURNAL OF FINANCIAL ECONOMETRICS. Retrieved from http://hdl.handle.net/10446/55101

High- and low-frequency correlations in European government bond spreads and their macroeconomic drivers

Boffelli, Simona;Urga, Giovanni
2016-01-01

Abstract

We propose to adopt high-frequency DCC-MIDAS models to estimate high- and low-frequency correlations in the 10-year government bond spreads for Belgium, France, Italy, the Netherlands, and Spain relative to Germany, from June 1, 2007 to May 31, 2012. The high-frequency component, reflecting financial market conditions, is evaluated at 15-minute frequency, while the low-frequency component, fixed through a month, depends on country-specific macroeconomic conditions. We find strong links between spreads volatility and worsening macroeconomic fundamentals; in presence of similar macroeconomic fundamentals relative spreads move together; the increasing correlation in spreads during the burst of the sovereign debt crisis cannot be entirely ascribed to macroeconomic factors but rather to changes in market liquidity.
articolo
2016
Boffelli, Simona; Skintzi, Vasiliki D.; Urga, Giovanni
(2016). High- and low-frequency correlations in European government bond spreads and their macroeconomic drivers [journal article - articolo]. In JOURNAL OF FINANCIAL ECONOMETRICS. Retrieved from http://hdl.handle.net/10446/55101
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