Fundamentally Wrong: Market Pricing of Sovereigns and the Greek Financial Crisis

Heather Gibson, Stephen Hall and George Tavlas

Journal of Macroeconomics, 2014, vol. 39, issue PB, 405-419

Abstract: We investigate the impact of the economic fundamentals, sovereign credit ratings, political uncertainty, and the ECB’s Securities Markets Program (SMP) on Greek sovereign spreads. Our findings show that sovereign downgrades and political uncertainty appear to have been drivers of the sharp rises in Greek sovereign spreads from 2008–2009 onwards, over-and-above the impact of the economic fundamentals. Our findings also show that prior to 2008–2009, the markets failed to incorporate Greece’s deteriorating fundamentals into the price of Greek sovereigns. We demonstrate that, once markets reassessed their pricing of Greek credit risk, the change in the influence of the fundamentals came swiftly and abruptly, exhibiting overshooting characteristics. The SMP reduced spreads while it was in operation.

Keywords: Euro area financial crisis; Sovereign spreads (search for similar items in EconPapers)
JEL-codes: E63 G12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070413001286
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Fundamentally wrong: market pricing of sovereigns and the Greek financial crisis (2013)
Working Paper: FUNDAMENTALLY WRONG: MARKET PRICING OF SOVEREIGNS AND THE GREEK FINANCIAL CRISIS (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:39:y:2014:i:pb:p:405-419

DOI: 10.1016/j.jmacro.2013.08.006

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().