The Anatomy of the Bond Market Turbulence of 1994

The bond market sell-off of 1994 has begun to
show up on lists of market events against which risk management systems are judged, but there has been little analysis of
the cause of the 1994 decline. This new working paper fills the void by examining a number of factors that
might explain the rise in volatility during that year. The authors investigate four types of one of these factors,
market dynamics—volatility persistence, relationships in the direction of market movements, foreign
disinvestment, and volatility spillover effects from other markets—and find that persistence has strong explanatory power.