Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67959
Authors: 
Schmid, Kai Daniel
Schmidt, Michael
Year of Publication: 
2012
Series/Report no.: 
University of Tübingen Working Papers in Economics and Finance 48
Abstract: 
Using annual data for 21 OECD countries we provide evidence of remarkable mispricing of sovereign bonds for the so-called GIIPS countries before the start of the financial crisis. Our results also qualify the view of pronounced overpricing in the crisis. In detail, we find: (i) Since the 1980s the role of public debt for the pricing of government bonds has changed twice: First-time in the aftermath of the signing of the Maastricht treaty, and again with the wake-up call due to the onset of the financial crisis. (ii) Before the financial crisis EMU member countries had de facto been perceived as a homogenous group with regard to the role of public debt for sovereign risk pricing. (iii) With the reconsideration of country-specific fundamentals the role of public debt has not only been revived but its impact upon bond yield spreads has become comparable to the time before the Maastricht treaty.
Subjects: 
EMU
GIIPS
public debt
risk perception
sovereign bond yields
JEL: 
E43
E44
E62
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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