The Greek Sovereign Debt Crisis: Testing for Regime Changes
AbstractThis paper examines whether the efficiency market hypothesis for the Greek sovereign debt holds. As in Blanco et al. (2005) we test the theoretical equivalence of credit default swap (CDS) and spreads that dictates a cointegration relationship between the two. The main innovation of the present analysis is the use of a threshold vector error-correction (TVECM) model, thus allowing thresholds within the sample covering the period 1990-2010. Moreover, by employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various events due to external market imperfections but also domestic factors. The main hypothesis we test is to what extent spreads and CDS are indeed integrated that may result in an efficient and integrated segniorage capital market. Our findings support the gradual integration hypothesis. We find that spreads and CDS are cointegrated, though threshold effects are also revealed in terms of events that have impacted on markets.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 16_11.
Date of creation: Mar 2011
Date of revision:
Threshold cointegration; Greek sovereign debt; Spreads over bund; CDS; ML Estimation;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
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