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Testing for Regime Changes in Greek Sovereign Debt Crisis

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  • Nicholas Apergis
  • Emmanuel Mamatzakis
  • Christos Staikouras

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 CI 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 to 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 segniorage 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. Copyright International Atlantic Economic Society 2011

Suggested Citation

  • Nicholas Apergis & Emmanuel Mamatzakis & Christos Staikouras, 2011. "Testing for Regime Changes in Greek Sovereign Debt Crisis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 258-273, August.
    • Handle: RePEc:kap:iaecre:v:17:y:2011:i:3:p:258-273:10.1007/s11294-011-9311-6
    DOI: 10.1007/s11294-011-9311-6
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    2. 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.

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    More about this item

    Keywords

    Threshold cointegrated; Greek sovereign debt; Spreads over bund; CDS; ML Estimation; G12; G14; G15;
    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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