A Unified Italy? - Sovereign Debt and Investor Scepticism

40 Pages Posted: 20 Mar 2012 Last revised: 17 May 2017

See all articles by Stéphanie Collet

Stéphanie Collet

Leibniz Institute for Financial Research SAFE

Date Written: August 1, 2016

Abstract

How do investors react to the issuance of common sovereign debt? This question is particularly relevant regarding the European sovereign debt crisis. The paper empirically studies the issuance of common debt during Italy’s unification. Based on an original database of Italian bonds, this paper shows the impact of Italy’s unification on bond prices. Around the sovereign debt integration, the paper highlights a substantial increase in the risk premium for low-yield bonds. Using break-point analysis and a Bayesian Dynamic Factor Model, the paper proves that investors did not believe in Italy’s unification for about six years, until common taxation was introduced.

Keywords: state succession, unification, financial history, sovereign debt, Italy

JEL Classification: F34, G12, G15, N23

Suggested Citation

Collet, Stéphanie, A Unified Italy? - Sovereign Debt and Investor Scepticism (August 1, 2016). Available at SSRN: https://ssrn.com/abstract=2024636 or http://dx.doi.org/10.2139/ssrn.2024636

Stéphanie Collet (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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