The significance of country-specific and common risk factors for CEE government bond spreads changes
This paper provides an empirical assessment of the relationship between common European Union and country-specific risk factors of sovereign bond spreads for Central and Eastern European countries over the period of 2004-2014. The model, estimated using Pooled Mean Group techniques, that accounts fo...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Vilnius University Press
2016-04-01
|
| Series: | Ekonomika |
| Subjects: | |
| Online Access: | https://www.journals.vu.lt/ekonomika/article/view/9908 |
| Summary: | This paper provides an empirical assessment of the relationship between common European Union and country-specific risk factors of sovereign bond spreads for Central and Eastern European countries over the period of 2004-2014. The model, estimated using Pooled Mean Group techniques, that accounts for both common long-run determinants and cross-country heterogeneities in sovereign bond spreads, tends to suggest that country-specific and common factors are important in the long-run, but common European Union factors are the main determinants of bond spreads in the short-run, i.e., market volatility index series converges with changes of sovereign bond spreads and turns out to be the predominant factor in the short-run. Furthermore, countries with stronger fundamentals have a tendency for lower responsiveness to changes in global risk aversion.
The decomposition of changes in spreads for the purpose to compare actual and estimated spreads specifies that during risk-on periods (when the increase of misalignment falls down) there is consistency for increasing of creditworthiness undervaluation. |
|---|---|
| ISSN: | 1392-1258 2424-6166 |