TY - JOUR
T1 - Absence of Speculation in the European Sovereign Debt Markets
AU - Frijns, Bart
AU - Zwinkels, Remco
PY - 2020/1
Y1 - 2020/1
N2 - European sovereign debt markets have been under scrutiny since the sovereign debt crisis of 2009. In this paper, we study to what extent the extreme dynamics were driven by fundamentals or speculation. We do so by decomposing bond and CDS spreads into fundamental and non-fundamental parts using a heterogeneous agent model. We find that bond markets are driven for 80% by liquidity trading, 13% by credit news, and only 5.4% by speculation. The CDS market is for 49% driven by credit news, 45% liquidity trading, and 5.5% speculation. The relative importance of the different types of agents varies over time, though.
AB - European sovereign debt markets have been under scrutiny since the sovereign debt crisis of 2009. In this paper, we study to what extent the extreme dynamics were driven by fundamentals or speculation. We do so by decomposing bond and CDS spreads into fundamental and non-fundamental parts using a heterogeneous agent model. We find that bond markets are driven for 80% by liquidity trading, 13% by credit news, and only 5.4% by speculation. The CDS market is for 49% driven by credit news, 45% liquidity trading, and 5.5% speculation. The relative importance of the different types of agents varies over time, though.
KW - Credit default swap
KW - Credit risk
KW - heterogeneous agent models
KW - sovereign bonds
UR - http://www.scopus.com/inward/record.url?scp=85076219894&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85076219894&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2019.11.017
DO - 10.1016/j.jebo.2019.11.017
M3 - Article
AN - SCOPUS:85076219894
SN - 0167-2681
VL - 169
SP - 245
EP - 265
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -