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Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis"

R. Braun () and Tomoyuki Nakajima ()

Review of Economic Dynamics, 2018, vol. 29, 235-255

Abstract: Transactions costs associated with taking short positions on sovereign debt can have profound effects on government debt yields and the pattern of trade as a country moves toward default. To make this point we propose an equilibrium model of the sovereign debt market and fit the model to reproduce the dynamic path of 5-year Greek sovereign bond yields between 2008 and its credit event in 2012. We find that short-selling costs play a central role in accounting for the path of government bond yields and the pattern of movements in net credit default swap positions on Greek debt during this sample period. (Copyright: Elsevier)

Keywords: Sovereign debt crisis; Bond prices; Short-selling; Leverage; Heterogenous beliefs (search for similar items in EconPapers)
JEL-codes: E62 G11 G12 H60 (search for similar items in EconPapers)
Date: 2018
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http://dx.doi.org/10.1016/j.red.2018.01.005
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Related works:
Working Paper: Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis (2012) Downloads
Working Paper: Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis (2011) Downloads
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