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European sovereign bond spreads: financial integration and market conditions

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  • Dimitris A. Georgoutsos
  • Petros M. Migiakis

Abstract

In the present article, we examine the dynamics of euro-area sovereign bond yield spreads focusing on issues related to financial integration and market conditions. The property of a root falling near the unity threshold, in the data generation process of the underlying bond yields, marks the necessity for careful econometric specification. Thus, we formulate the sovereign bond yield spreads, for 10 Economic and Monetary Union (EMU), countries against the Bund as autoregressive processes with nonlinear properties, with the use of both Markov switching and smooth transition autoregression techniques. This way we examine, rather than assume, whether stable parity conditions existed in the underling bond yields and the effects of various events, for a period extending to early 1990s and the Maastricht Treaty. The results validate the presence of nonlinear characteristics in the stochastic processes of the series and that the case of a slow mean reverting process cannot be rejected irrespective of the regime we examine.

Suggested Citation

  • Dimitris A. Georgoutsos & Petros M. Migiakis, 2013. "European sovereign bond spreads: financial integration and market conditions," Applied Financial Economics, Taylor & Francis Journals, vol. 23(20), pages 1609-1621, October.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:20:p:1609-1621
    DOI: 10.1080/09603107.2013.842637
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    Cited by:

    1. Nikolaos Stoupos & Apostolos Kiohos, 2022. "Euro Area: Towards a European Common Bond? – Empirical Evidence from the Sovereign Debt Markets," Journal of Common Market Studies, Wiley Blackwell, vol. 60(4), pages 1019-1046, July.
    2. Muhammad Ali Nasir & Min Du, 2018. "Integration of Financial Markets in Post Global Financial Crises and Implications for British Financial Sector: Analysis Based on A Panel VAR Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 363-388, June.

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