A tale of two risks in the EMU sovereign debt markets

Erdinc Akyildirim, Duc Khuong Nguyen and Ahmet Sensoy

Economics Letters, 2018, vol. 172, issue C, 102-106

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.

Keywords: European Monetary Union; Sovereign bonds; Systematic risk; Liquidity (search for similar items in EconPapers)
JEL-codes: G01 G13 G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Working Paper: A Tale of Two Risks in the EMU Sovereign Debt Markets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:172:y:2018:i:c:p:102-106

DOI: 10.1016/j.econlet.2018.08.042

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