Testing for Regime Changes in Greek Sovereign Debt Crisis

27 Pages Posted: 1 Feb 2011

See all articles by Nicholas Apergis

Nicholas Apergis

University of Piraeus; University of Derby

Emmanuel C. Mamatzakis

University of Macedonia

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: November 2010

Abstract

This paper examines whether the efficiency market hypothesis for the Greek sovereign debt holds. As in Blanco et al. (2005) we test the theoretical equivalence of credit default swap (CDS) and spreads that dictates a CI relationship between the two. The main innovation of the present analysis is the use of a threshold vector error-correction (TVECM) model, thus allowing thresholds within the sample covering the period 1990-2010. Moreover, by employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various events due to external market imperfections but also domestic factors. The main hypothesis we test is to what extent spreads and CDS are indeed integrated that may result in an efficient and integrated segniorage capital market. Our findings support the gradual integration hypothesis. We find that spreads and CDS are cointegrated, though threshold effects are also revealed in terms of events that have impacted on markets.

Keywords: Threshold Cointegration, Greek Sovereign Debt, Spreads Over Bund, CDS, ML Estimation

JEL Classification: G12, G14, G15

Suggested Citation

Apergis, Nicholas and Mamatzakis, Emmanuel C. Manolis and Staikouras, Christos, Testing for Regime Changes in Greek Sovereign Debt Crisis (November 2010). Available at SSRN: https://ssrn.com/abstract=1752834 or http://dx.doi.org/10.2139/ssrn.1752834

Nicholas Apergis (Contact Author)

University of Piraeus ( email )

Karaoli and Dimitriou 80
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18534
Greece

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

Emmanuel C. Manolis Mamatzakis

University of Macedonia ( email )

Thessaloniki, 54006
Greece

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, 104 34
Greece
+30 210 8203 459 (Phone)

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