Volatility Connectedness of MOVE Index and Bond Returns

Ender Baykut; Halilibrahim Gökgöz

Volatility Connectedness of MOVE Index and Bond Returns

Ender Baykut, Halilibrahim Gökgöz

Abstract

Research Originality: To the best of our knowledge, this is the first study which measures the impact of the MOVE index on bond yield volatility by comparing its effect on both short-term and long-term. The paper contributes to the existing literature by providing a better understanding of the relationship between maturity and volatility spillover.

Research Objectives: This study examines the dynamic volatility connectedness between 2 and 10-year bond yields and the MOVE Index. Furthermore, it is aimed at detecting the transmitter of volatility among variables.

Research Methods: Using a data set from 2010 to 2022, the study utilizes a Time-Varying Parameter Vector Autoregression (TVP-VAR) model to analyse the dynamics and relationship between bond yields and the MOVE Index.

Empirical Results: The study finds a significant volatility spillover between the MOVE Index and Türkiye's bond yields. Notably, the linkage between the MOVE Index and the 10-year bond rates is stronger than with the 2-year rates. Additionally, the MOVE Index emerges as the primary transmitter of volatility, impacting both bond yields.

Implications: This study sheds light on the complexity and dynamics of volatility spread in Türkiye's bond market, providing essential insights for forecasting bond yields and shaping financial policies.

JEL Classification: G17, C22, G12

How to Cite:

Baykut, E., Gökgöz, H. (2024). Volatility Connectedness of MOVE Index and Bond Returns. Etikonomi, 23(1), 27 – 46. https://doi.org/10.15408/etk.v23i1.36131.

Keywords

Bond Volatility; TVP-VAR; MOVE Index

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DOI: 10.15408/etk.v23i1.36131