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Overcrowding Versus Liquidity in the Euro Sovereign Bond MarketsAndrea CoppolaWorld Bank; University of Rome II - Department of Economics and Law; Ministry of Economy and Finance, Italy Alessandro GirardiIndependent Gustavo PigaUniversity of Rome February 20, 2012 CEIS Working Paper No. 222 Abstract: With the adoption of a common currency the degree of substitution between financial instruments supplied by EMU Member States to finance their national debts has risen. Providing the market for euro-denominated government securities with a large volume of similar financial instruments is likely to increase liquidity and lower yields. By contrast, providing an excessive volume of the same instrument might increase the return demanded by investors. This paper aims at empirically assessing the balance between liquidity and overcrowding effects by EMU countries’ issuance plans. Our results document a significant relationship between bunching in issues and bond yields.
Number of Pages in PDF File: 27 Keywords: EMU, government bond yields, liquidity, issuance calendars JEL Classification: H63, H69 working papers seriesDate posted: February 20, 2012Suggested CitationContact Information
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