Regime-dependent sovereign risk pricing during the Euro crisis

Delatte, A-L and Fouquau, J and Portes, R (2016) Regime-dependent sovereign risk pricing during the Euro crisis. Review of Finance, 27 (1). pp. 363-385. ISSN 1382-6662

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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

Item Type: Article
Additional Information: © 2016 European Finance Association
Subjects: C > Crises
G > Government bonds
E > Euro
Subject Areas: Economics
DOI: 10.1093/rof/rfw050
Date Deposited: 29 Nov 2016 10:17
Last Modified: 28 Mar 2017 13:22

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