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The Greek Sovereign Debt Crisis: Testing for Regime Changes

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Author Info

  • N. Apergis

    ()
    (Department of Banking and Financial Management, University of Piraeus)

  • E. Mamatzakis

    ()
    (Department of Economics, University of Piraeus)

  • C. Staikuras

    ()
    (Department of Accounting and Finance, Athens University of Economics and Business)

Abstract

This 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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File URL: http://www.rcfea.org/RePEc/pdf/wp16_11.pdf
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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 16_11.

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Date of creation: Mar 2011
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Handle: RePEc:rim:rimwps:16_11

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Related research

Keywords: Threshold cointegration; Greek sovereign debt; Spreads over bund; CDS; ML Estimation;

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