A multivariate latent factor decomposition of international bond yield spreads

By Mardi Dungey, Vance L. Martin, A. Pagan. 2000

137 citations recorded by the source corpus.

A factor analysis of long-term bond spreads is performed by decomposing international interest rate spreads into national and global factors. The factors are latent, and are assumed to have GARCH-type specifications as well as exhibiting serial dependence. An indirect estimator is used to compute estimates of the unknown parameters. The sampling performance of this estimator is investigated and compared with an alternative direct estimator based on the Kalman predictor. The factor model is applied to weekly data on long-bond spreads between five countries - Australia, Japan, Germany, Canada and the UK - and the USA over the period 1991 to 1999. The resulting factor decomposition is used to examine the international investor's optimal portfolio decision in a mean-variance framework. Copyright © 2000 John Wiley & Sons, Ltd.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/f82cefbae2bdc4f1518c3a0c0d76fdecea34c66d

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Citations in the corpus

Yield spreads on EMU government bonds (2003, background): “Figure 4 shows that, as observed by Favero et al. (1997) and Blanco (2002), the exchange rate factor did heavily affect yield differentials in the pre-EMU era.”
Multivariate GARCH Models: A Survey (2003, methodology): “Dungey, Martin, and Pagan (2000) analyze bond yield spreads between five countries by decomposing international interest rate spreads into national and global latent factors.”
Empirical Modeling of Contagion (2004, unknown): “In the case where there is a single factor, a suitable specification is w t = e t , (21) where e t ∼ N (0, h t ) , (22) with conditional volatility h t , given by a GARCH factor structure (Diebold and Nerlove, 1989; Dungey, Martin, and Pagan, 2000): h t = (1 − α − β) + αe 2 t−1 + βh t−1 .”
How Does Liquidity Affect Government Bond Yields? (2009, unknown): “If bond sales were triggered by changes in consumption opportunities or other “supply side” considerations as in the delegated-portfolio management model of Vayanos (2004), rather than from changes in the riskreturn profile of alternative investments, the πi would depend positively on α rather than ”
Fool the Markets? Creative Accounting, Fiscal Transparency and Sovereign Risk Premia (2006, unknown): “24 E.g. Dungey et al. (2000) provide strong evidence of a common international factor in many yield differentials.”
Fiscal institutions, fiscal policy and sovereign risk premia in EMU (2008, unknown): “5 Dungey et al. (2000) provide strong evidence of a common international factor in many yield differentials.”
Global Yield Curve Dynamics and Interactions : A Dynamic (2007, background): “Dungey, Martin and Pagan, 2000 ), and affine equilibrium analyses (e.g., Brennan and Xia, 2004).”