EMU and European Government Bond Market Integration
33 Pages Posted: 31 Aug 2009
Date Written: August 27, 2009
Abstract
The main objective of this paper is to study whether the introduction of the euro had an impact on the degree of integration of European Government bond markets. We adopt the CAPM-based model of Bekaert and Harvey (1995) to compare, from the beginning of Monetary Union until June 2008, the differences in the relative importance of two sources of systemic risk (world and Eurozone risk) on Government bond returns, in the two groups of countries (EMU and non-EMU) in EU-15. Our empirical evidence suggests that the impact of the introduction of the euro on the degree of integration of European Government bond markets was important. The markets of the countries that share a monetary policy are less vulnerable to the influence of world risk factors, and more vulnerable to EMU risk factors. However, euro markets are only partially integrated, since they are still segmented and present differences in market liquidity or default risk. For their part, the countries that decided to stay out of the Monetary Union present a higher vulnerability to external risk factors.
Keywords: Monetary integration, sovereign securities markets, bond markets integration
JEL Classification: E44, F36, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Common Factors in International Bond Returns
By Joost Driessen, Theo Nijman, ...
-
A Conditional Assessment of the Relationships between the Major World Bond Markets
By Delroy M. Hunter and David P. Simon
-
A Conditional Assessment of the Relationships Between the Major World Bond Markets
By Delroy M. Hunter and David P. Simon
-
An Analysis of the Relationship between International Bond Markets
By Andrew Clare and Ilias Lekkos
-
Dynamics of Bond Market Integration between Existing and Accession EU Countries
By Suk-joong Kim, Brian M. Lucey, ...
-
Monetary Policy Implications of Comovements Among Long-Term Interest Rates