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Measuring Sovereign Bond Market Integration

Author

Listed:
  • Ines Chaieb
  • Vihang Errunza
  • Rajna Gibson Brandon
  • Andrew Karolyi

Abstract

We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign bond markets increases by about 10% on average, when a country moves from the 25th to the 75th percentile as a result of higher political stability and credit quality, lower inflation and inflation risk, and lower illiquidity. The 10% increase in integration leads to, on average, a decrease in the sovereign cost of funding of about 1% per annum.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Ines Chaieb & Vihang Errunza & Rajna Gibson Brandon & Andrew Karolyi, 2020. "Measuring Sovereign Bond Market Integration," The Review of Financial Studies, Society for Financial Studies, vol. 33(8), pages 3446-3491.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:8:p:3446-3491.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz107
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    Citations

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    Cited by:

    1. Stoupos, Nikolaos & Kiohos, Apostolos, 2022. "Bond markets integration in the EU: New empirical evidence from the Eastern non-euro member-states," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    2. Salah Uddin, Gazi & Lucey, Brian & Rahman, Md Lutfur & Stenvall, David, 2024. "Quantile coherency across bonds, commodities, currencies, and equities," Journal of Commodity Markets, Elsevier, vol. 33(C).
    3. Christopher A. Hartwell & Paul M. Vaaler, 2023. "The Price of Empire: Unrest Location and Sovereign Risk in Tsarist Russia," Papers 2309.06885, arXiv.org, revised Nov 2023.
    4. Chernov, Mikhail & Creal, Drew & Hördahl, Peter, 2023. "Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds," Journal of International Economics, Elsevier, vol. 140(C).
    5. Bekaert, Geert & De Santis, Roberto A., 2021. "Risk and return in international corporate bond markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    6. Qin, Weiping & Cho, Sungjun & Hyde, Stuart, 2023. "Time-varying bond market integration and the impact of financial crises," International Review of Financial Analysis, Elsevier, vol. 90(C).

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