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Fragmentation and heterogeneity in the euro-area corporate bond market: Back to normal?

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  • Zaghini, Andrea

Abstract

We assess the degree of market fragmentation in the euro-area corporate bond market by disentangling the determinants of the risk premium paid on bonds at origination. By looking at over 2400 bonds we are able to isolate the country-specific effects which are a suitable indicator of the market fragmentation. We find that, after peaking during the sovereign debt crisis, fragmentation shrank in 2013 and receded to pre-crisis levels only in 2014. However, the low level of estimated market fragmentation is coupled with a still high heterogeneity in actual bond yields, challenging the consistency of the new equilibrium.

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  • Zaghini, Andrea, 2016. "Fragmentation and heterogeneity in the euro-area corporate bond market: Back to normal?," Journal of Financial Stability, Elsevier, vol. 23(C), pages 51-61.
    • Handle: RePEc:eee:finsta:v:23:y:2016:i:c:p:51-61
    DOI: 10.1016/j.jfs.2016.01.009
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    7. De Santis, Roberto A., 2016. "Credit spreads, economic activity and fragmentation," Working Paper Series 1930, European Central Bank.
    8. Zaghini, Andrea, 2017. "A tale of fragmentation: Corporate funding in the euro-area bond market," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 59-68.
    9. Jan Kakes & Jan Willem van den End, 2023. "Identifying financial fragmentation: do sovereign spreads in the EMU reflect differences in fundamentals?," Working Papers 778, DNB.
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    21. Wang, Yabin & Wu, Sharon Xiaohui, 2023. "Local guarantees and SOE bond pricing in China," China Economic Review, Elsevier, vol. 78(C).
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    23. Matteo Accornero & Paolo Finaldi Russo & Giovanni Guazzarotti & Valentina Nigro, 2018. "Missing Investors in the Italian Corporate Bond Market," Questioni di Economia e Finanza (Occasional Papers) 450, Bank of Italy, Economic Research and International Relations Area.
    24. Guo, Wen & Liu, Xiaorui, 2022. "Market fragmentation of energy resource prices and green total factor energy efficiency in China," Resources Policy, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Corporate bond market; Sovereign debt crisis; Financial fragmentation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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