A tale of two risks in the EMU sovereign debt markets. (English) Zbl 1406.91262
Summary: We introduce time-varying systematic yield risk (SYR) and systematic liquidity risk (SLR) measures for sovereign bond markets of the major European Monetary Union (EMU) country members. Using daily sovereign bond data, our analysis shows that trend components of both types of risk are strongly positively correlated. Vector auto-regression and generalized impulse response analysis reveal that shocks to the SLR has significant impact on SYR lasting up to 5 days, whereas shocks to the SYR has no significant impact on SLR. Since mid-2015, both risks are gradually increasing and as of 2018, they are at their highest levels over the last five years.
MSC:
| 91B64 | Macroeconomic theory (monetary models, models of taxation) |
| 62P20 | Applications of statistics to economics |
References:
| [1] | Acharya, V.; Pedersen, L. H., Asset pricing with liquidity risk, J. Financ. Econ., 77, 375-410, (2005) |
| [2] | Bali, T. G.; Engle, R. F., The intertemporal capital asset pricing model with dynamic conditional correlations, J. Monet. Econ., 57, 377-390, (2010) |
| [3] | Bali, T. G.; Engle, R. F.; Tang, Y., Dynamic conditional beta is alive and well in the cross-section of daily stock returns, Manag. Sci., 63, 3760-3779, (2017) |
| [4] | Bao, J.; Pan, J.; Wang, J., The illiquidity of corporate bonds, J. Finance, 66, 911-946, (2011) |
| [5] | Boermans, B. A.; Frost, J.; Bisschop, S. S., European bond markets: do illiquidity and concentration aggravate price shocks?, Econom. Lett., 141, 143-146, (2016) |
| [6] | Bollerslev, T., Modelling the coherence in short-run nominal exchange rates: A multivariate generalized ARCH model, Rev. Econ. Statist., 72, 498-505, (1990) |
| [7] | Brunnermeier, M. K.; Pedersen, L. H., Market liquidity and funding liquidity, Rev. Financ. Stud., 22, 2201-2238, (2009) |
| [8] | Chordia, T.; Roll, R.; Subrahmanyam, A., Commonality in liquidity, J. Financ. Econ., 56, 3-28, (2000) |
| [9] | Chordia, T.; Sarkar, A.; Subrahmanyam, A., An empirical analysis of stock and bond market liquidity, Rev. Financ. Stud., 18, 85-129, (2005) |
| [10] | Coro, F.; Dufour, A.; Varotto, S., Credit and liquidity components of corporate CDS spreads, J. Bank. Finance, 37, 5511-5525, (2013) |
| [11] | Engle, R. F., Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models, J. Bus. Econom. Statist., 20, 339-350, (2002) |
| [12] | Engle, R. F.; Jondeau, E.; Rockinger, M., Systemic risk in Europe, Rev. Finance, 19, 145-190, (2015) |
| [13] | Favero, C.; Pagano, M.; von Thadden, How does liquidity affect government bond yields?, J. Financ. Quant. Anal., 45, 107-134, (2010) |
| [14] | Fleming, M. J., Measuring treasury market liquidity, NY Fed Econ. Policy Rev., 9, 83-108, (2003) |
| [15] | Hasbrouck, J.; Seppi, D. J., Common factors in prices, order flows, and liquidity, J. Financ. Econ., 59, 383-411, (2001) |
| [16] | Hodrick, R.; Prescott, E. C., Postwar U.S. business cycles: an empirical investigation, J. Money Credit Bank., 29, 1-16, (1997) |
| [17] | Huberman, G.; Halka, D., Systematic liquidity, J. Financ. Res., 24, 161-178, (2001) |
| [18] | Jankowitsch, R.; Mosenbacher, H.; Pichler, S., Measuring the liquidity impact on EMU government bond prices, Eur. J. Finance, 12, 153-169, (2006) |
| [19] | Karnaukh, N.; Ranaldo, A.; Soderlind, P., Understanding FX liquidity, Rev. Financ. Stud., 28, 3073-3108, (2015) |
| [20] | Korajczyk, R. A.; Sadka, R., Pricing the commonality across alternative measures of liquidity, J. Financ. Econ., 87, 45-72, (2008) |
| [21] | Lin, H.; Wang, J.; Wu, C., Liquidity risk and expected corporate bond returns, J. Financ. Econ., 99, 628-650, (2011) |
| [22] | Mancini, L.; Ranaldo, A.; Wrampelmeyer, J., Liquidity in the foreign exchange market: measurement, commonality, and risk premiums, J. Finance, 68, 1805-1841, (2013) |
| [23] | Manganalli, S.; Wolswijk, G., What drives spreads in the euro area government bond market?, Econ. Policy, 24, 191-240, (2009) |
| [24] | Mayordomo, S.; Rodriguez-Moreno, M.; Pena, J. I., Liquidity commonalities in the corporate CDS market around the 2007-2012 financial crisis, Int. Rev. Econ. Finance, 31, 171-192, (2014) |
| [25] | Pastor, L.; Stambaugh, R., Liquidity risk and expected stock returns, J. Political Econ., 113, 642-685, (2003) |
| [26] | Petrella, G., Resti, A., 2013. What drives the liquidity of eurozone sovereign bonds? GRETA Working Paper Series.; Petrella, G., Resti, A., 2013. What drives the liquidity of eurozone sovereign bonds? GRETA Working Paper Series. |
| [27] | Sadka, R., Momentum and post-earnings announcement drift anomalies: the role of liquidity risk, J. Financ. Econ., 80, 309-349, (2006) |
| [28] | Sensoy, A., Systematic risk in conventional and islamic equity markets, Int. Rev. Finance, 16, 457-466, (2016) |
| [29] | Sensoy, A., Firm size, ownership structure, and systematic liquidity risk: the case of an emerging market, J. Financ. Stab., 31, 62-80, (2017) |
| [30] | Sensoy, A.; Nguyen, D. K.; Rostom, A.; Hacihasanoglu, E., Dynamic integration and network structure of the EMU sovereign bond markets, Ann. Oper. Res., (2018), URL https://dx.doi.org/10.1007/s10479-018-2831-1 · Zbl 1430.91114 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
