Towards a common Eurozone risk free rate

Sergio Mayordomo, Juan Ignacio Peña and Eduardo S. Schwartz

The European Journal of Finance, 2015, vol. 21, issue 12, 1005-1022

Abstract: We present a tentative estimate of a common risk free rate for the Eurozone (EZ) countries from January 2004 to November 2009. In a first stage, we analyse the determinants of EZ sovereign yield spreads and find significant effects of the credit quality, macro, correlation, liquidity, and interaction variables. Based on these results we estimate the yield a common EZ bond would provide. Finally, we compute potential savings in financing costs for countries participating in the scheme under a number of different scenarios. Although positive on average, these savings are dependent on market conditions and present substantial variation over time and across countries.

Date: 2015
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DOI: 10.1080/1351847X.2014.912670

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