10-year Bond Rates Research Articles

Volatility Connectedness of MOVE Index and Bond Returns

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, G12How 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.

Analysis of the relationship of gold prices with inflation and bitcoin in the post-tapering period

We analyze the hedging feature of gold against inflation by analyzing the factors affecting gold prices for the post-2013 period, including the tapering process in the United States. Our results show that especially demand for gold Exchange Traded Funds (ETFs) and US 10-year bond rates are effective on gold prices in this period. Inflation has no statistically significant effect on gold prices over the sample period; however, in the subperiod, excluding 2014–2019, inflation has a statistically significant positive impact on gold prices. We conclude that gold does provide a partial hedge against inflation as an investment tool, at least for the recent period. Furthermore, our analysis of Bitcoin's effect on gold prices starting in the second half of 2016 shows no statistically significant relationship.

Optimizing Stock Portfolio using Markowitz Model

The stock market is a well-known illustration of an investing option with obvious returns. Its volatility provides a basis for carefully analyzing its prior results in an effort to forecast future market returns. This paper discusses the various models used for selecting investment portfolios and utilizes the Markowitz decision-making model to aid in selecting an optimal investment portfolio based on historical price data and US Treasury 10-year bond rate data. Four stocks were included in the model, with two popular and highly volatile stocks, and two fast-growing stocks. The Markowitz model that maximizes the Sharpe ratio favors the two fast-growing stocks, whereas the same calculations for minimizing risk favor the more volatile stocks, but only lowers risk marginally and reduce returns significantly. The paper further analyzed the accuracy of the Markowitz model in this specific case and provided the Fama French model as a usable alternative that will likely provide alternative suggestions that are more correlated to real-life scenarios.

Determinants of benchmark interest rate: evidence form Turkish bond markets

Purpose- The aim of this study is to analyze the determinants of benchmark interest rate for Turkey that on framework of Turkey's economic and financial determinants of the political cycle of Turkey and examine their relationships and the interactions of indicators to determined benchmark interest rates. Methodology- In this study, Augmented Dickey Fuller unit root test was applied to select the method by which long and short term relationships will be determined. Since the series are stationary at the same level, the VAR model was established and the short-term relationships were examined with the long-term vector error correction model with the Johansen cointegration test. Impulse-response analysis, variance decomposition and historical decomposition tests were carried out within the framework of the Granger test test in order to determine the interactions between variables. Findings- The benchmark interest rate is balanced in the short and long term with the selected variables and the deviations in the short term can be corrected in the long term. The variables that affect the benchmark interest the most are gold, inflation and US 10-year bond rates. Conclusion- The sensitivity of the benchmark rate is high against the shock waves arising from gold prices, inflation and US 10-year bond rates. Central bank Weighted average funding cost is more determinant in the formation of market rates than real interest rates. In short, the central bank monetary policy, inflation expectations and interest rates and gold prices abroad determines the formation of market interest for Turkey.

Interest rate changes and stock returns: A European multi-country study with wavelets

This paper investigates the linkage between changes in 10-year government bond yields and stock returns for the major European countries in the time-frequency domain by using a number of cross-wavelet tools in the framework of the continuous wavelet transform, mainly the wavelet coherence and phase-difference. The results reveal that the degree of connection between 10-year bond rate movements and stock returns differs considerably among countries and also varies over time and depending on the time horizon considered. In particular, the UK shows the greatest interdependence between long-term interest rates and equity returns across time and frequencies, while the relationship is much weaker for several peripheral European countries such as Portugal, Ireland and Greece. The highest level of connection is observed for most countries since the onset of the recent global financial crisis. In addition, the significant linkage is mainly concentrated at investment horizons from one to 2years.

Testing the rationality of exchange rate and interest rate expectations: an empirical study of Australian survey-based expectations

This paper examines the rationality of the Australian survey-based expectations, 1- and 4-week-ahead $US/$A exchange rate and 2 and 4-week-ahead Australian 90-day bank bill and 10-year bond rates. The actual and expected variables are found to be cointegrated, indicating that the expected future values and the future realizations of the exchange rate and interest rates have long-run equilibrium relationships. OLS estimations with the Newey - West corrections are employed for testing the unbiased expectations hypothesis (UEH) where the frequency of the expectations data is finer than the forecast horizons, and the exponential-GARCH models that take into account the time-varying nature of the forecasterror variance are employed for testing the weak rational expectations hypothesis (WREH). The evidence shows that the WREH could not be rejected in any case, except for the two-week-ahead forecast of the 90-day interest rate, which indicates that all available information is used at the time of forming relevant forecasts. The UEH, however, is decisively rejected in all cases. This indicates that strong rationality, which requires both UEH and WREH, is rejected in all cases. It is concluded that forecasters are weakly rational; however, their forecasts are not unbiased because the data available to them when forming expectations are inadequate.