Dynamic co-movement based on evidence from selected emerging market bond yields

Ester Mendivil,   Merlin Calta

Abstract


This paper present a simulation study of the evaluation of co-movement and correlations in international fixed income markets by using the method of examining dynamic linkages in three emerging bond market yields along with the US. The Statistical results suggest that daily bond yields for these markets are not linked, which implies significant long-run risk diversification. Moreover, dynamic correlations between emerging market bond yields appear to be more sensitive to negative news rather than to positive news, albeit at low magnitudes. In general, accounting for time-variation is mostly beneficial and leads in most cases to an improvement in the risk-reward ratio relative to measures.

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