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A tale of two risks in the EMU sovereign debt markets

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  • Akyildirim, Erdinc
  • Nguyen, Duc Khuong
  • Sensoy, Ahmet

Abstract

We introduce time-varying systematic yield risk (SYR) and systematic liquidity risk (SLR) measures for sovereign bond markets of the major European Monetary Union (EMU) country members. Using daily sovereign bond data, our analysis shows that trend components of both types of risk are strongly positively correlated. Vector auto-regression and generalized impulse response analysis reveal that shocks to the SLR has significant impact on SYR lasting up to 5 days, whereas shocks to the SYR has no significant impact on SLR. Since mid-2015, both risks are gradually increasing and as of 2018, they are at their highest levels over the last five years.

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  • Akyildirim, Erdinc & Nguyen, Duc Khuong & Sensoy, Ahmet, 2018. "A tale of two risks in the EMU sovereign debt markets," Economics Letters, Elsevier, vol. 172(C), pages 102-106.
    • Handle: RePEc:eee:ecolet:v:172:y:2018:i:c:p:102-106
    DOI: 10.1016/j.econlet.2018.08.042
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    Cited by:

    1. Sensoy, Ahmet & Uzun, Sevcan & Lucey, Brian M., 2021. "Commonality in FX liquidity: High-frequency evidence," Finance Research Letters, Elsevier, vol. 39(C).

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    More about this item

    Keywords

    European Monetary Union; Sovereign bonds; Systematic risk; Liquidity;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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