A tale of two risks in the EMU sovereign debt markets

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Date

2018-09

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Source Title

Economics Letters

Print ISSN

0165-1765

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Publisher

Elsevier B.V.

Volume

172

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Pages

102 - 106

Language

English

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Article

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Abstract

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.

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European Monetary Union, Liquidity, Sovereign bonds, Systematic risk

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http://hdl.handle.net/11693/49865

Published Version (Please cite this version)

https://doi.org/10.1016/j.econlet.2018.08.042

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Scholarly Publications - Management