Mean Reversion in Sovereign CDS and Bond Markets of Advanced Economies: Measuring Long-Term Impact of 2019-2022 Crises on Volatility using GARCH and Half-Life Models

Alexander A. Doronin

National Research University Higher School of Economics, Moscow, Russia

Abstract

The purpose of this study is to test whether there is a long-run impact of the external shocks in 2019–2022 on the volatility dynamics of sovereign bonds and CDS, namely the onset of the COVID-19 pandemic in 2020, the abrupt change in the monetary policy by the Fed and ECB in 2022, and the global energy crisis in 2021–2022. An important task in this case is to measure how fast the volatility returns to its mean values, or the speed of mean reversion. To address it, the bond and CDS markets of seven developed countries were selected for the period from January 6, 2019, to January 1, 2023. The research methodology included univariate ARMA-(E)GARCH models with and without endogenous structural breaks and measures of mean reversion speed using a half-life metric. The results indicate that sovereign bonds and CDS of developed countries exhibit characteristics of a mean reversion process in the level of volatility, with an observed acceleration in the dynamics of the process after accounting for external shocks, which points to the absence of long-run effects of crises. This conclusion indicates that sovereign bond and CDS pricing does not obey the efficient market hypothesis. In other words, yields and volatility of such financial instruments inevitably come to their long-run historical values, successfully absorbing external shocks that do not have a long-run impact on pricing process. The reaction of volatility to external shocks among countries seems to be homogeneous, pointing at close integration of sovereign CDS and bond markets.

Keywords

sovereign CDS and bond markets; external shocks; efficient market hypothesis; GARCH-modelling; mean reversion process.

JEL classification

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Acknowledgements

I appreciate the help of professor Teplova T.V. from the National Research University of Higher School of Economics.

About Authors

Alexander Andreevich Doronin

Post-Graduate Student, Faculty of Economics, National Research University Higher School of Economics, Moscow, Russia (109028, Moscow, Pokrovsky boulevard, 11); ORCID https://orcid.org/0009-0005-0144-963X e-mail: doron2k18@gmail.com

For citation

Doronin, A.A. (2026). Mean Reversion in Sovereign CDS and Bond Markets of Advanced Economies: Measuring Long-Term Impact of 2019-2022 Crises on Volatility using GARCH and Half-Life Models. Journal of Applied Economic Research, Vol. 25, No. 2, С. 392-423. https://doi.org/10.15826/vestnik.2026.25.2.013

Article info

Received May 5, 2025; Revised February 10, 2026; Accepted March 18, 2026.

DOI: http://dx.doi.org/10.15826/vestnik.2026.25.2.013

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