Financial Development, Bond Market Returns, and Stability: International Evidence
This paper examines (1) the effects of financial development on government bond returns in developed and emerging markets and (2) whether this effect differs under different market conditions. By applying quantile regression framework for quarterly panel data of 28 countries over the period 1999-2015, we find that the effect of financial development on government bond returns depends on the market conditions and it differs among developed and emerging markets. For developed markets, financial development has a positive and significant effect on government bond returns only in good market conditions, while the effect is negative (but not significant) in bad market conditions. The results for emerging markets show that the effect of financial development is significant in both, bad and good market conditions.
Area: Financial Stability
Keywords: Financial development; Government bond markets; Quantile regression
