A Conditional Assessment of the Relationships Between the Major World Bond Markets

31 Pages Posted: 4 Feb 2005

See all articles by Delroy M. Hunter

Delroy M. Hunter

University of South Florida

David P. Simon

Bentley University - Department of Finance

Date Written: June 24, 2003

Abstract

This paper uses a bivariate GARCH framework to examine the lead-lag relations and the conditional correlations between 10-year US government bond returns and their counterparts from the UK, Germany, and Japan. We find that while mean and volatility spillovers exist between the major international bond markets, they are much weaker than those between equity markets. The results also indicate that the correlations between the US and other major bond market returns are time varying and are driven by changing macroeconomic and market conditions. However, in contrast to the finding that the benefits of international diversification in equity markets evaporate during high-stress periods, we find that the benefits of diversification across major government bond markets do not decrease during periods of extremely high bond market volatility or following extremely negative US and foreign bond returns.

Keywords: International bonds, conditional correlation, bond correlation, diversification benefits

JEL Classification: G15

Suggested Citation

Hunter, Delroy M. and Simon, David P., A Conditional Assessment of the Relationships Between the Major World Bond Markets (June 24, 2003). Available at SSRN: https://ssrn.com/abstract=586562 or http://dx.doi.org/10.2139/ssrn.586562

Delroy M. Hunter

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

David P. Simon (Contact Author)

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States
781-891-2489 (Phone)
781-891-2896 (Fax)

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