Absence of speculation in the European sovereign debt markets

Bart Friijns; Remco C. J. Zwinkels

doi:10.1016/j.jebo.2019.11.017

Absence of speculation in the European sovereign debt markets

Bart Friijns, Remco C. J. Zwinkels^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

3 Citations (Web of Science)

Abstract

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.

Original language	English
Pages (from-to)	245-265
Number of pages	21
Journal	Journal of Economic Behavior & Organization
Volume	169
DOIs	https://doi.org/10.1016/j.jebo.2019.11.017
Publication status	Published - Jan 2020
Externally published	Yes

Keywords

AGENTS
BEHAVIORAL HETEROGENEITY
BELIEFS
BONDS
CDS
CONTAGION
Credit default swap
Credit risk
DEFAULT
DYNAMICS
RISK
heterogeneous agent models
sovereign bonds

Access to Document

10.1016/j.jebo.2019.11.017

Cite this

@article{1294f697d64e4905a9126f02a0bc1845,

title = "Absence of speculation in the European sovereign debt markets",

abstract = "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.",

keywords = "AGENTS, BEHAVIORAL HETEROGENEITY, BELIEFS, BONDS, CDS, CONTAGION, Credit default swap, Credit risk, DEFAULT, DYNAMICS, RISK, heterogeneous agent models, sovereign bonds",

author = "Bart Friijns and Zwinkels, {Remco C. J.}",

year = "2020",

month = jan,

doi = "10.1016/j.jebo.2019.11.017",

language = "English",

volume = "169",

pages = "245--265",

journal = "Journal of Economic Behavior & Organization",

issn = "0167-2681",

publisher = "Elsevier",

}

TY - JOUR

T1 - Absence of speculation in the European sovereign debt markets

AU - Friijns, Bart

AU - Zwinkels, Remco C. J.

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 - AGENTS

KW - BEHAVIORAL HETEROGENEITY

KW - BELIEFS

KW - BONDS

KW - CDS

KW - CONTAGION

KW - Credit default swap

KW - Credit risk

KW - DEFAULT

KW - DYNAMICS

KW - RISK

KW - heterogeneous agent models

KW - sovereign bonds

U2 - 10.1016/j.jebo.2019.11.017

DO - 10.1016/j.jebo.2019.11.017

M3 - Article

SN - 0167-2681

VL - 169

SP - 245

EP - 265

JO - Journal of Economic Behavior & Organization

JF - Journal of Economic Behavior & Organization

ER -

Absence of speculation in the European sovereign debt markets

Abstract

Keywords

Access to Document

Fingerprint

Cite this