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Pricing Sovereign Bond Risk In The European Monetary Union Area: An Empirical Investigation

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  • António Afonso
  • Michael G. Arghyrou
  • Alexandros Kontonikas

Abstract

ABSTRACT We use a panel of 10 euro area countries to assess the determinants of long‐term sovereign bond yield spreads over the period 1999.01–2010.11. We find that government bond yield spreads are well explained by fiscal fundamentals over the crisis period. We also find that the menu of risk factors priced by markets has been significantly enriched since March 2009, including international risk, liquidity risk and the risk of the crisis' transmission among European Monetary Union member states. Finally, we find that transmission risk has increased considerably since spring 2009 because of rapidly increasing risk of investing in periphery bonds relative to core ones. Copyright © 2013 John Wiley & Sons, Ltd.

Suggested Citation

  • António Afonso & Michael G. Arghyrou & Alexandros Kontonikas, 2014. "Pricing Sovereign Bond Risk In The European Monetary Union Area: An Empirical Investigation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(1), pages 49-56, January.
  • Handle: RePEc:wly:ijfiec:v:19:y:2014:i:1:p:49-56
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    Cited by:

    1. António Afonso & Michael G. Arghyrou & María Dolores Gadea & Alexandros Kontonikas, 2017. ""Whatever it takes" to Resolve the European Sovereign Debt Crisis? Bond Pricing Regime Switches and Monetary Policy Effects," CESifo Working Paper Series 6691, CESifo Group Munich.
    2. repec:bla:worlde:v:40:y:2017:i:9:p:1718-1749 is not listed on IDEAS
    3. repec:eee:quaeco:v:66:y:2017:i:c:p:1-12 is not listed on IDEAS
    4. repec:eee:finsta:v:33:y:2017:i:c:p:187-206 is not listed on IDEAS
    5. António Afonso & João Tovar Jalles, 2017. "Quantitative Easing and Sovereign Yield Spreads: Euro-Area Time-Varying Evidence," Working Papers REM 2017/20, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    6. repec:eee:finlet:v:21:y:2017:i:c:p:144-150 is not listed on IDEAS
    7. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2017. "Eurozone bond market dynamics, ECB monetary policy and financial stress," Sciences Po publications 18, Sciences Po.
    8. Eleonora Cutrini and Giorgio Galeazzi, 2014. "Contagion in the Euro crisis: capital flows and trade linkages," Working Papers 44-2014, Macerata University, Department of Studies on Economic Development (DiSSE), revised Nov 2014.
    9. António Afonso & João Tovar Jalles, 2016. "Economic Volatility and Sovereign Yields’ Determinants: a Time-Varying Approach," Working Papers Department of Economics 2016/04, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

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