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Sovereign bond market integration in the euro area: a new empirical conceptualization

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Abstract

This paper proposes a new empirical conceptualization of financial integration of sovereign bond markets in the euro area. We introduce a methodology based on the joint testing of the assumptions of efficient market and convergence/divergence of the yield spreads. We test these assumptions by proposing parametric and non-parametric techniques. We find that markets have been more fragmented than usually advocated in the literature. We also show that the information contained in the fundamentals are not always fully reflected in the spreads, which suggests that either they have insignificant effects, or that their coefficients in the spread equations appear with the wrong sign.

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Notes

  1. For a survey, see Ben Ameur et al. (2018) and Jawadi et al. (2018).

  2. See Bekaert et al. (2005) for more details on conagion versus integration among markets.

  3. See Sect. 2 for more details.

  4. The reader can also refer to more related papers including (For other examples of papers, the reader can refer to Attinasi et al., 2009; Ben Salem & Castelletti, 2016; Constantini et al., 2014; Laubach, 2009; Von Hagen et al., 2011).

  5. For more details on the quantile regressions, see Koenker et al. (2017).

  6. Fore more details on this specifications, Afonso et al. (2015, 2020), Afonso et Nunes (2015), Aizenman et al. (2013), Beirne et Fratzscher (2013), Bernoth et Ergodan (2012), De Santis (2014), Erce (2015), Chaieb et al. (2014), Heinz et Sun (2014), Mink et de Haan (2013) and Maltriz (2012).

  7. For more details on this index, see Hollo et al. (2012).

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Funding

This work was supported by the French National Research Agency Grant ANR-17-EURE-0020, and the Excellence Initiative of Aix-Marseille University - A*MIDEX

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Correspondence to Gilles Dufrénot.

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Dufrénot, G., Jawadi, F. & Ftiti, Z. Sovereign bond market integration in the euro area: a new empirical conceptualization. Ann Oper Res 318, 147–161 (2022). https://doi.org/10.1007/s10479-022-04847-5

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