Paper Title
Investigating the Role of Sovereign Bond Markets in Financial Markets Volatility Spillovers

Abstract
We apply the spillover index methodology developed by Diebold and Yilmaz (2009, 2012) to investigate the role sovereign bond markets play in volatility spillovers taking place on financial markets. In the first phase of the analysis we estimate fixed and time-varying return and volatility spillovers among 19 developed and developing countries´sovereign bond markets for the post-Lehman Brothers bankruptcy period. In addition we decompose the overall sovereign bond markets spillover dynamics into specific country-to-country return and volatility spillovers. In the second phase of the analysis we estimate measures of directional volatility spillovers for sovereign bond, equity, foreign exchange and commodity markets for 6 developed and developing countries in order to understand whether sovereign bond markets function more as originators of volatility innovations or they act more as recipients of these innovations. We conclude that even though sovereign bond markets exhibit significant shifts in the intensity of volatility spillovers associated mostly with European debt crisis, it is equity markets and not bond markets that act as originators of volatility innovation. In countries which do not have a developed equity markets, sovereign bond markets partially assume the originating role equity markets have. Keywords: volatility spillover index, equity markets, bond markets, foreign exchange markets, commodity markets JEL CLASSIFICATION: C32, G01, G15