Academic Research

Information shares and market quality before and during the European sovereign debt crisis - 2022
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Year Published: 2022

 

Author(s): Harald Kinateder, Vassilios G. Papavassiliou

 

Abstract: We investigate information shares in the price discovery process in the euro- area sovereign bond market across the yield curve, during both calm and crisis periods. We employ a rich high-frequency dataset from the MTS platform. We find that price discovery is enhanced, on average, especially for periph- ery countries during the European sovereign debt crisis however, increases in information shares are not uniform across the yield curve. We further show that no particular market leads the price formation process across all maturity segments. We find a clear improvement in market quality for core countries (Germany and the Netherlands) but mixed results for periphery countries (Italy and Spain) in the crisis period.

Price and liquidity discovery in European sovereign bonds and futures - 2022
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Year Published: 2022

 

Author(s): Ruggero Jappelli, Konrad Lucke, Loriana Pelizzon

 

Abstract: This work uses financial markets connected by arbitrage relations to investigate the dynamics of price and liquidity discovery, which refer to the cross-instrument forecasting power for prices and liquidity, respectively. Specifically, we seek to understand the linkage between the cheapest to deliver bond and closest futures pairs by using high-frequency data on European governments obligations and derivatives. We split the 2019-2021 sample into three subperiods to appreciate changes in the liquidity discovery induced by the COVID-19 pandemic. Within a cointegration model, we find that price discovery occurs on the futures market, and document strong empirical support for liquidity spillovers both from the futures to the cash market as well as from the cash to the futures market.

A high-frequency analysis of return and volatility spillovers in the European sovereign bond market - 2021
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Year Published: 2021

 

Author(s): Conall O'Sullivan, Vassilios G. Papavassiliou

 

Abstract: Using high-frequency data from the MTS trading platform, we examine return and volatility spillover effects across different maturities in the European sovereign bond market over tranquil and crisis periods. The longer-term benchmark securities of core countries are the largest net volatility transmitters, whereas the shorter-term bench- marks of periphery countries are the leading net receivers of volatility shocks. Moreover, the short-end and the long-end of the yield curve in both regions emerge as the sole net recipients of return spillovers. We note that bonds of periphery countries become volatility spillover transmitters during important macroeconomic events such as credit rating downgrades and financial assistance packages to financially distressed countries.

On the term structure of liquidity in the European sovereign bond market - 2020
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Year Published: 2020

 

Author(s): Conall O'Sullivan, Vassilios G. Papavassiliou

 

Abstract: The paper provides a high-frequency analysis of liquidity dynamics in the eurozone sovereign bond mar- ket over tranquil and crisis periods. We study time series of liquidity across the yield curve using high- frequency data from MTS, one of Europe’s leading electronic fixed-income trading platforms. We docu- ment flight-to-liquidity effects as investors prefer to trade on shorter-term benchmarks during liquidity dry-ups. We provide evidence of significant commonalities in spread and depth liquidity proxies which are weaker during the crisis period for both core and periphery economies although periphery coun- tries display higher commonality than core countries during the crisis. We show that illiquidity of the periphery countries plays an important role in market dynamics and Granger causes illiquidity, volatility, returns, and CDS spreads across the maturity spectrum in both calm and crisis periods. Liquidity is priced both as a characteristic and as a risk factor even when controlling for credit risk, pointing to liquidity’s systematic dimension and importance.

Sovereign bond return prediction with realized higher moments - 2019
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Year Published: 2019

 

Author(s): Harald Kinateder, Vassilios G. Papavassiliou

 

Abstract: This paper analyzes whether realized higher moments are able to predict out-of-sample sovereign bond returns using high-frequency data from the European bond market. We study bond return predictability over tranquil and crisis periods and across core and periphery markets at the index and country level. We provide fresh evidence that realized kurtosis is the dominant predictor of subsequent returns among higher moments and other predictors such as CDS spreads, short-term interest rates and implied stock market volatility. Our findings further underline that sovereign bond return predictability is stronger during crisis periods and more pronounced for bonds of lower credit ratings.

Measuring and analyzing liquidity and volatility dynamics in the Euro-area government bond market - 2017
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Year Published: 2017

 

Author(s): Conall O'Sullivan, Vassilios G. Papavassiliou

 

Abstract: This chapter examines the impact the European sovereign debt market crisis had on liquidity and volatility dynamics and their interdependencies in the eurozone government bond market. In particular, we examine the impact across differ- ent countries and across different maturity buckets within individual countries. A comprehensive high-frequency dataset from MTS, Europe’s premier electronic fixed-income trading market, is employed to construct a variety of microstructure liquidity and volatility measures. We analyze important trends in these measures over both tranquil and crisis periods. Additionally, we study time-varying corre- lations as well as the intertemporal interactions of liquidity proxies with volatility and returns. Our findings provide useful insights to regulators and policy makers on the relative strengths and weaknesses of domestic and global financial systems.