Regime-dependent sovereign risk pricing during the Euro crisis

Delatte, A-L, Fouquau, J and Portes, R (2017) Regime-dependent sovereign risk pricing during the Euro crisis. Review of Finance, 27 (1). pp. 363-385. ISSN 1382-6662 OPEN ACCESS

Abstract

Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in euro area peripheral countries during the euro crisis, but we know little about the driver(s) of regime switches. Our estimates based on a panel smooth threshold regression model quantify and explain them: (1) investors have penalized a deterioration of fundamentals more strongly from 2010 to 2012; (2) the higher the bank credit risk, measured with the premium on credit derivatives, the higher the extra premium on fundamentals; (3) after ECB President Draghi’s speech in July 2012, it took 1 year to restore the noncrisis regime and suppress the extra premium

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Item Type: Article
Subject Areas: Economics
Additional Information: © 2016 European Finance Association. This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Finance following peer review. The version of record: Anne-Laure Delatte, Julien Fouquau, Richard Portes (2017) Regime-Dependent Sovereign Risk Pricing During the Euro Crisis, Review of Finance, Volume 21, Issue 1, March 2017, Pages 363–385 is available online at: https://academic.oup.com/rof/article/21/1/363/2670359 and at: https://doi.org/10.1093/rof/rfw050
Funder Name: Seventh Framework Programme
Subjects: C > Crises
G > Government bonds
E > Euro
Date Deposited: 29 Nov 2016 10:17
Last Modified: 15 Jul 2019 02:17
URI: http://lbsresearch.london.edu/id/eprint/738
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