Journal of Economics and Finance

, Volume 38, Issue 4, pp 687–697 | Cite as

Greek sovereign bond index, volatility, and structural breaks

Article

Abstract

This article investigates volatility changes in the 10-year Greek sovereign bond index returns using the multiple structural break test developed by Bai and Perron (Econometrica 66:47–78, 1998, J Appl Econ 18:1–22, 2003), which allows for endogenous identification of break dates. We find that there exists one break date in volatility, April 2010, when the European debt crisis worsened and the Greek sovereign bond was downgraded to junk status. We also obtain evidence of performance improvement in our modeling by including structural break dummies into the variance equation. We observe sharp drops in a measure of volatility persistence after incorporating the structural change. Our findings are important for not only investors who assess the volatility of sovereign bonds for portfolio risk management, but also for policy makers who wish to understand and minimize the impacts of excess volatility on the financial system in government bond markets.

Keywords

Volatility Greek government bond European sovereign debt crisis Multiple structural break test EGARCH 

JEL Classification

C50 F30 G15 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Graduate School of EconomicsKobe UniversityKobeJapan
  2. 2.Faculty of EconomicsKobe UniversityKobeJapan

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