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The Greek Sovereign Debt Crisis: Testing for Regime Changes

Author

Listed:
  • 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 seigniorage 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.

Suggested Citation

  • N. Apergis & E. Mamatzakis & C. Staikuras, 2011. "The Greek Sovereign Debt Crisis: Testing for Regime Changes," Working Paper series 16_11, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:16_11
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    References listed on IDEAS

    as
    1. Jan De Wit, 2006. "Exploring the CDS-Bond Basis," Working Paper Research 104, National Bank of Belgium.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
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    Citations

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    Cited by:

    1. Jason Seligman, 2012. "Support of State and Local Finance under Persistent Federal Deficits," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(4), pages 383-395, November.
    2. Sibbertsen, Philipp & Wegener, Christoph & Basse, Tobias, 2014. "Testing for a break in the persistence in yield spreads of EMU government bonds," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 109-118.

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    More about this item

    Keywords

    Threshold cointegration; Greek sovereign debt; Spreads over bund; CDS; ML Estimation;
    All these keywords.

    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

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