The Significance of Country-Specific and Common Risk Factors for CEE Government Bond Spreads Changes

Juodžiukynienė Greta ()
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Juodžiukynienė Greta: Faculty of Economics, Vilnius University, Saulėtekio Ave. 9-II, LT-10222,Vilnius, Lithuania

Ekonomika (Economics), 2016, vol. 95, issue 1, 84-111

Abstract: This paper provides an empirical assessment of the relationship between common European Union and country-specific risk factors of sovereign bond spreads for Central and Eastern European countries over the period of 2004-2014. The model, estimated using Pooled Mean Group techniques, that accounts for both common long-run determinants and cross-country heterogeneities in sovereign bond spreads, tends to suggest that country-specific and common factors are important in the long-run, but common European Union factors are the main determinants of bond spreads in the short-run, i.e., market volatility index series converges with changes of sovereign bond spreads and turns out to be the predominant factor in the short-run. Furthermore, countries with stronger fundamentals have a tendency for lower responsiveness to changes in global risk aversion. The decomposition of changes in spreads for the purpose to compare actual and estimated spreads specifies that during risk-on periods (when the increase of misalignment falls down) there is consistency for increasing of creditworthiness undervaluation.

Keywords: Sovereign bond spreads; Central and Eastern Europe; Pooled mean group (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ekonom:v:95:y:2016:i:1:p:84-111:n:5

DOI: 10.15388/ekon.2016.1.9908

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