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Excess volatility and market efficiency in government bond markets: the ASEAN-5 context

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Abstract

This study examines the presence of excess volatility and market efficiency in government bond markets of ASEAN-5 member countries. The individual country-level bond volatility is verified using an AR-GARCH model with a multivariate extension of panel approach to examine the effects of international diversification. Wavelet coherence is employed to present visually the co-movement between the bond prices in a time–frequency space. The empirical results indicate that the presence of excess volatility is found in all countries. In addition, the findings from the panel analysis reveal evidence of market inefficiency in government bonds but lower excess volatility in the 10-year bond. There is also a large difference of magnitude in excess volatility, suggesting that the ASEAN-5 bond market is inefficient in individual markets. Excess volatility is less persistent regionally with low correlations, implying that balanced portfolios would greatly benefit from international diversifications. The results from the wavelet coherence analysis imply that investment in ASEAN bond prices may yield lower risk reduction for long horizon.

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Authors and Affiliations

  1. Nottingham University Business School Malaysia, The University of Nottingham Malaysia, Selangor, Malaysia

    Kin-Boon Tang & Shao-Jye Wong

  2. Department of Money and Banking, National Chengchi University, Taipei, Taiwan, ROC

    Shih-Kuei Lin & Szu-Lang Liao

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  1. Kin-Boon Tang
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  2. Shao-Jye Wong
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  4. Szu-Lang Liao
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Correspondence to Kin-Boon Tang.

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Tang, KB., Wong, SJ., Lin, SK. et al. Excess volatility and market efficiency in government bond markets: the ASEAN-5 context. J Asset Manag 21, 154–165 (2020). https://doi.org/10.1057/s41260-020-00154-5

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