@techreport{Wagenvoort2010Uncovering,
abstract = {We introduce Longitudinal Factor Analysis (LFA) to extract the Common Risk Free (CRF) rate from a sample of sovereign bonds of countries in a monetary union. Since LFA exploits the typically very large longitudinal dimension of bond data, it performs better than traditional factor analysis methods that rely on the much smaller cross-sectional dimension. European sovereign bond yields for the period 2006-2010 are decomposed into a CRF rate, a default risk premium, and a liquidity risk premium, shedding new light on issues such as benchmark status, flight-to-quality and flight-to-liquidity hypotheses. Our empirical findings suggest that investors chase both credit quality and liquidity, and that liquidity is more valued when aggregate risk is high.},
address = {Luxembourg},
author = {Rien Wagenvoort and Sanne Zwart},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {C19; E43; G12; 330; factor analysis; risk free interest rate; sovereign bond; benchmark},
language = {eng},
number = {2010/05},
publisher = {European Investment Bank},
title = {Uncovering the common risk free rate in the European Monetary Union},
type = {Economic and financial reports / European Investment Bank},
url = {http://hdl.handle.net/10419/45285},
year = {2010}
}
