Fundamentally wrong: market pricing of sovereigns and the Greek financial crisis

Heather Gibson, Stephen Hall and George Tavlas

No 20, Special Conference Papers from Bank of Greece

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 2008-9 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)
Pages: 42
Date: 2013-07
New Economics Papers: this item is included in nep-ias and nep-mac
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Fundamentally Wrong: Market Pricing of Sovereigns and the Greek Financial Crisis (2014)
Working Paper: FUNDAMENTALLY WRONG: MARKET PRICING OF SOVEREIGNS AND THE GREEK FINANCIAL CRISIS (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bog:spaper:20

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