Table 2.
Policy Responses and Bond Market Volatility
The table reports the results of the panel data regressions. The dependent variable is the absolute daily residual from the seven-factor model (|RR7|). The independent variables are the Government Response Index (GVT), Economic Support Index (ECO), Containment and Health Index (CTNT), change in the number of COVID-19 infections (ΔINF), change in the number of COVID-19 deaths (ΔDTH), bond duration (DUR), sovereign rating (CRED), convexity (CX), the market value of a bond index portfolio (MV) in U.S. dollars, VIX volatility index (VIX), and weekday dummy variables. #Obs denotes the number of observations and R2 represents an adjusted coefficient of determination. The regressions are run using random-effects models. Coefficient standard errors (in parentheses) are robust to autocorrelation and heteroscedasticity. The asterisks *, **, and *** indicate statistical significance at the 10%, 5%, and 1% levels, respectively. All the coefficients are multiplied by 100, except the coefficients for ΔINF and ΔDTH which are multiplied by 100,000, and the coefficients for MV which are multiplied by 100,000,000. The study period runs from January 1, 2020 to September 12, 2020.
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
| GVT | -0.196*** | -0.169*** | -0.187*** | -0.161*** | ||||
| (0.038) | (0.038) | (0.038) | (0.038) | |||||
| ECO | -0.102** | -0.070* | -0.104** | -0.073** | ||||
| (0.043) | (0.037) | (0.042) | (0.036) | |||||
| CNTN | -0.078 | -0.090* | -0.064 | -0.077 | ||||
| (0.052) | (0.051) | (0.051) | (0.050) | |||||
| DUR | -1.000 | 54.600** | -0.965 | 54.900** | -0.903 | 51.900** | -0.864 | 52.000* |
| (1.690) | (26.700) | (1.690) | (27.000) | (1.710) | (26.300) | (1.700) | (26.600) | |
| CRED | 2.510*** | 1.200** | 2.490*** | 1.180** | 2.470*** | 1.240** | 2.440*** | 1.230** |
| (0.869) | (0.575) | (0.861) | (0.571) | (0.844) | (0.573) | (0.833) | (0.567) | |
| VIX | 1.280*** | 1.260*** | 1.280*** | 1.270*** | 1.240*** | 1.240*** | 1.240*** | 1.240*** |
| (0.162) | (0.157) | (0.162) | (0.157) | (0.150) | (0.151) | (0.150) | (0.150) | |
| ΔINF | 0.010*** | 0.096* | 0.073 | 0.004 | 0.093* | 0.073 | ||
| (0.000) | (0.058) | (0.048) | (0.046) | (0.057) | (0.048) | |||
| CX | -3.140** | -3.150** | -2.980** | -2.980** | ||||
| (1.440) | (1.460) | (1.420) | (1.440) | |||||
| MV | -0.229*** | -0.219*** | -0.217** | -0.204** | ||||
| (0.000) | (0.000) | (0.000) | (0.000) | |||||
| ΔDTH | -5.400** | -5.110* | -5.880*** | -5.450** | ||||
| (2.250) | (2.690) | (2.170) | (2.670) | |||||
| Weekday dummies |
YES | YES | YES | YES | YES | YES | YES | YES |
| # Obs. | 5,673 | 5,673 | 5,673 | 5,673 | 5,673 | 5,673 | 5,673 | 5,673 |
| R2 | 0.182 | 0.209 | 0.183 | 0.210 | 0.185 | 0.208 | 0.187 | 0.208 |