Impact of Brexit on bond yields and volatility spillover across France, Germany, UK, USA, and India’s debt markets
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Author(s)Sangeetha G NagarakatteLink to ORCID Index: https://orcid.org/0000-0002-9211-1802
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Natchimuthu NatchimuthuLink to ORCID Index: https://orcid.org/0000-0002-2461-7801
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DOIhttp://dx.doi.org/10.21511/imfi.19(3).2022.16
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Article InfoVolume 19 2022, Issue #3, pp. 189-202
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- 511 Views
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176 Downloads
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Creative Commons Attribution 4.0 International License
Britain’s decision to exit the EU lead to disruptions in global markets. This study investigates the change in the return and volatility spillover pattern due to the repercussions of the Brexit vote between the US, France, the UK, Germany, and India’s 10-year government bond yields by applying the VAR and GARCH-BEKK models. The findings demonstrate a substantial rise in the return spillover to India and USA 10-year government bond yields following the Brexit vote compared to the pre-Brexit vote era. In addition, the results showed evidence of unidirectional volatility spillover from India to France, bidirectional volatility spillover between the USA and India, and unidirectional volatility spillover from the UK to India 10-year government bond market post-Brexit vote. However, there was no interconnection between these markets before the Brexit vote. Therefore, the Brexit vote did affect and significantly increased the linkage between the US, France, the UK, and India’s 10-year government bond market. The increase in correlation in India-US, India-UK, and India-France’s 10-year government bond markets will help predict and have an important implication for hedgers, decision-makers, and portfolio managers if similar political events occur in the future.
- Keywords
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JEL Classification (Paper profile tab)G11, G15
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References65
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Tables5
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Figures2
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- Figure 1. Pre-Brexit vote era bond yield
- Figure 2. Post-Brexit vote era bond yield
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- Table 1. Descriptive statistics of 10-year government bond yields at first difference
- Table 2. Correlation matrix between bond yields at first difference
- Table 3. VAR parameters for the pre-Brexit vote era
- Table 4. VAR parameters for the post-Brexit vote era
- Table 5. Estimation of bivariate GARCH-BEKK model parameters
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