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Are European Corporate Bond Markets Integrated? A Macro-Finance Term Structure Model ApproachRoland FüssUniversity of St. Gallen Dirk SchiereckEBS Universität für Wirtschaft und Recht - EBS Business School - Department of Governance & Economics Arne WilkesEBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance, Accounting and Real Estate January 1, 2010 European Business School Research Paper No. 10-04 Abstract: This paper proposes a term structure model of risk-free yields and corporate credit spreads for the European bond market. In addition to latent factors, we include observable macro factors that are linked to inflation, real activity, and financial activity. Following the approach of Ang and Piazzesi (2003), we model the term structure simultaneously by using yield and macroeconomic data on the Euro zone for the January 2000-September 2008 period. Empirical evidence suggests that the European bond market is integrated to a significant degree. However, it has not yet reached the level of the U.S. bond market due to some residual segmentation and market frictions.
Number of Pages in PDF File: 59 Keywords: Term structure model, credit spreads, macro factors, European bond JEL Classification: E43, E44, F15, G12 working papers seriesDate posted: February 28, 2010 ; Last revised: January 20, 2011Suggested CitationContact Information
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