RETURN AND VOLATILITY SPILLOVERS AMONG FIXED INCOME SECURITIES IN THAI BOND MARKET

Abstract

This paper examines the spillover effects among fixed income securities with different characteristics in Thai bond market. Multivariate GARCH (1,1) models are estimated for three different sub-classes of bond; time to maturity, credit rating as well as liquidity. The sub-classes are chosen such that they reflect different levels of risk and attract different groups of investors or different purposes of investment to capture the possible spillover effects in return and volatility. The sample consists of daily and weekly returns of bonds existing between 2003 – 2013. The results suggest that spillovers effects among different sub-classes of bonds exist in terms of return and volatility in the majority of Thai bonds. For time to maturity, short time to maturity has return spillover to both medium and long time to maturity of government bond and medium time to maturity has return spillover to all short, medium and long time to maturity of corporate bond. For credit rating, government credit rating has return spillover to low credit rating of corporate bond. And for liquidity, high liquidity has return spillover to low liquidity of government bond. However, most of all relations exist volatility spillovers among different sub-classes of bond. Lastly, the results are contributes to investors, market participants and regulators for monetary policy implementation.