The Greek Sovereign Debt Crisis: Testing for Regime Changes

Nicholas Apergis (), Emmanuel Mamatzakis and C. Staikuras ()
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C. Staikuras: Department of Accounting and Finance, Athens University of Economics and Business

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper examines whether the efficiency market hypothesis for the Greek sovereign debt holds. As in Blanco et al. (2005) we test the theoretical equivalence of credit default swap (CDS) and spreads that dictates a cointegration relationship between the two. The main innovation of the present analysis is the use of a threshold vector error-correction (TVECM) model, thus allowing thresholds within the sample covering the period 1990-2010. Moreover, by employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various events due to external market imperfections but also domestic factors. The main hypothesis we test is to what extent spreads and CDS are indeed integrated that may result in an efficient and integrated seigniorage capital market. Our findings support the gradual integration hypothesis. We find that spreads and CDS are cointegrated, though threshold effects are also revealed in terms of events that have impacted on markets.

Keywords: Threshold cointegration; Greek sovereign debt; Spreads over bund; CDS; ML Estimation (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2011-03
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Citations: View citations in EconPapers (2)

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