EMU and European Government Bond Market Integration

33 Pages Posted: 31 Aug 2009

See all articles by Pilar Abad-Romero

Pilar Abad-Romero

Universidad Rey Juan Carlos - Facultad de Ciencias Jurisdicas y Sociales; University of Barcelona - Riskcenter-IREA

Helena Chuliá

University of Barcelona - Faculty of Economic Science and Business Studies

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Date Written: August 27, 2009

Abstract

The main objective of this paper is to study whether the introduction of the euro had an impact on the degree of integration of European Government bond markets. We adopt the CAPM-based model of Bekaert and Harvey (1995) to compare, from the beginning of Monetary Union until June 2008, the differences in the relative importance of two sources of systemic risk (world and Eurozone risk) on Government bond returns, in the two groups of countries (EMU and non-EMU) in EU-15. Our empirical evidence suggests that the impact of the introduction of the euro on the degree of integration of European Government bond markets was important. The markets of the countries that share a monetary policy are less vulnerable to the influence of world risk factors, and more vulnerable to EMU risk factors. However, euro markets are only partially integrated, since they are still segmented and present differences in market liquidity or default risk. For their part, the countries that decided to stay out of the Monetary Union present a higher vulnerability to external risk factors.

Keywords: Monetary integration, sovereign securities markets, bond markets integration

JEL Classification: E44, F36, G15

Suggested Citation

Abad-Romero, Pilar and Chuliá, Helena and Gómez-Puig, Marta, EMU and European Government Bond Market Integration (August 27, 2009). ECB Working Paper No. 1079, Available at SSRN: https://ssrn.com/abstract=1444815 or http://dx.doi.org/10.2139/ssrn.1444815

Pilar Abad-Romero

Universidad Rey Juan Carlos - Facultad de Ciencias Jurisdicas y Sociales ( email )

Po. de Artilleros, s/n
Madrid, 28032
Spain

University of Barcelona - Riskcenter-IREA ( email )

Av. Diagonal, 690
Barcelona, 08034
Spain

Helena Chuliá

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Barcelona
Spain

Marta Gómez-Puig (Contact Author)

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

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