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Has the Grexit news affected euro area financial markets?

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  • Gregori, Wildmer Daniel
  • Sacchi, Agnese

Abstract

This paper investigates whether news about Greek exit from the euro area has affected other European countries’ sovereign bond yields. Our empirical analysis covers more than 64,000 daily news items on Grexit between December 2014 and October 2015. We build a Grexit intensity index that captures policy concerns about the euro area break-up. Higher intensity of Grexit news drives up government bond yields in peripheral countries (Italy, Portugal, and Spain, excluding Ireland), whereas there are no effects on core countries. Those reactions reveal a contagious punishment from the financial markets based on fear factors related to political stability of individual member state and the euro area’s solidity.

Suggested Citation

  • Gregori, Wildmer Daniel & Sacchi, Agnese, 2019. "Has the Grexit news affected euro area financial markets?," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 71-84.
  • Handle: RePEc:eee:ecofin:v:49:y:2019:i:c:p:71-84
    DOI: 10.1016/j.najef.2019.04.007
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    Keywords

    Grexit; Financial markets; Government bond; News; Euro area; GARCH;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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

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