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Testing for a break in the persistence in yield spreads of EMU government bonds

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  • Sibbertsen, Philipp
  • Wegener, Christoph
  • Basse, Tobias

Abstract

This study tests for a break in the persistence of EMU government bond yield spreads examining data from France, Italy and Spain and using German interest rates as a kind of benchmark. The results reported here provide evidence for breaks between 2006 and 2008. The persistence of the yield spreads against German government bonds has increased significantly after this period. This could be a sign of higher sovereign credit risk (and possibly even redenomination risk) caused by the debt crisis in the euro area. We find clear indications for non-stationary behavior after the breakpoints and empirical evidence for positive excess kurtosis and GARCH-effects when persistence increases.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jbfina:v:41:y:2014:i:c:p:109-118
    DOI: 10.1016/j.jbankfin.2014.01.003
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    Cited by:

    1. Nguyen, Duc Binh Benno & Prokopczuk, Marcel & Sibbertsen, Philipp, 2017. "The Memory of Stock Return Volatility: Asset Pricing Implications," Hannover Economic Papers (HEP) dp-613, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    2. Frömmel, Michael & Kruse, Robinson, 2015. "Interest rate convergence in the EMS prior to European Monetary Union," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 990-1004.
    3. repec:eee:ecmode:v:66:y:2017:i:c:p:139-145 is not listed on IDEAS
    4. Leschinski, Christian & Voges, Michelle & Sibbertsen, Philipp, 2018. "Integration and Disintegration of EMU Government Bond Markets," Hannover Economic Papers (HEP) dp-625, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    5. Dimpfl, Thomas & Langen, Tobias, 2015. "A Cross-Country Analysis of Unemployment and Bonds with Long-Memory Relations," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112921, Verein für Socialpolitik / German Economic Association.
    6. Christian Leschinski, Christian & Bertram, Philip, 2013. "Contagion Dynamics in EMU Government Bond Spreads," Hannover Economic Papers (HEP) dp-515, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    7. repec:eee:intfin:v:49:y:2017:i:c:p:129-139 is not listed on IDEAS
    8. repec:eee:intfin:v:48:y:2017:i:c:p:192-205 is not listed on IDEAS
    9. repec:eee:intfin:v:50:y:2017:i:c:p:36-51 is not listed on IDEAS
    10. Antonakakis, Nikolaos & Christou, Christina & Cunado, Juncal & Gupta, Rangan, 2017. "Convergence patterns in sovereign bond yield spreads: Evidence from the Euro Area," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 129-139.
    11. Bessler, Wolfgang & Leonhardt, Alexander & Wolff, Dominik, 2016. "Analyzing hedging strategies for fixed income portfolios: A Bayesian approach for model selection," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 239-256.
    12. repec:eee:finsta:v:29:y:2017:i:c:p:72-91 is not listed on IDEAS
    13. repec:eee:ememar:v:31:y:2017:i:c:p:96-115 is not listed on IDEAS
    14. Yu Hsing, 2015. "Determinants of the Government Bond Yield in Spain: A Loanable Funds Model," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 3(3), pages 1-9, July.
    15. Juan Carlos Cuestas & Luis A. Gil-Alana & Paulo José Regis, 2015. "The Sustainability of European External Debt: What have We Learned?," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 445-468, August.
    16. Sensoy, Ahmet & Hacihasanoglu, Erk & Rostom, Ahmed, 2015. "European economic and monetary union sovereign debt markets," Policy Research Working Paper Series 7149, The World Bank.

    More about this item

    Keywords

    Testing uncovered interest parity; Fractional integration; Changing persistence;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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