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

The Significance of Country-Specific and Common Risk Factors for CEE Government Bond Spreads Changes AbstractThis 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Ekonomika (Economics) de Gruyter

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

Juodžiukynienė, Greta
Ekonomika (Economics) , Volume 95 (1): 28 – Jan 1, 2016
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References (42)

Publisher
de Gruyter
Copyright
© 2018 Greta Juodžiukynienė, published by Sciendo
ISSN
2424-6166
eISSN
2424-6166
DOI
10.15388/ekon.2016.1.9908
Publisher site
See Article on Publisher Site

Abstract

AbstractThis 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.

Journal

Ekonomika (Economics) – de Gruyter

Published: Jan 1, 2016

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