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The European sovereign debt market: from integration to segmentation

Cipollini, A and Coakley, J and Lee, H (2015) 'The European sovereign debt market: from integration to segmentation.' European Journal of Finance, 21 (2). 111 - 128. ISSN 1351-847X

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Abstract

© 2013 Taylor & Francis. This paper investigates the impact of European Monetary Union (EMU) and of the recent financial and fiscal crisis on the integration of the European sovereign debt market using annual data 1992–2010. The panel regression dependent variable is time-varying market linkages computed from daily realised correlations between sovereign bond returns for 13 European economies and Germany. The results indicate that the elimination of currency risk following the implementation of EMU led to a fundamental and significant one-off increase in integration. The net impact of fiscal fundamentals was negligible up until 2009 as the markets seemed to be pricing in a potential bailout for member states in crisis and not fully pricing default risk. However, by 2010 the parlous situation of the peripheral economies lead the markets to price default risk and heralded a return to segmentation. The related increase in peripheral economy sovereign spreads has exacerbated the problem of fiscal imbalances which pose a major challenge for policy-makers.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Jim Jamieson
Date Deposited: 29 Aug 2013 16:03
Last Modified: 02 Mar 2018 13:15
URI: http://repository.essex.ac.uk/id/eprint/7472

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