A VOLATILITY ANALYSIS OF THE EURO CURRENCY AND THE BOND MARKET

This paper aims to study the dynamics of the volatilities of euro currency pairs and bond markets and seeks to determine the possible connections between the two. For this purpose the methodology involves three types of GARCH models calibrated on series of six euro currency pairs and on 10–year maturity government bonds from the corresponding countries. The results indicate that the volatilities of the currency returns are connected to the corresponding governmental bond returns. Taking into account the fact that these bonds react mostly to macroeconomic events, we can conclude that new events impacts the volatility of currency returns at the daily frequency.