Measuring Sovereign Bond Market Integration

Swiss Finance Institute Research Paper No. 16-52.

Forthcoming, Review of Financial Studies

66 Pages Posted: 4 Aug 2016 Last revised: 3 Oct 2019

See all articles by Ines Chaieb

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Rajna Gibson

European Corporate Governance Institute (ECGI); University of Geneva - Geneva Finance Research Institute (GFRI)

Date Written: March 16, 2017

Abstract

We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign bond markets increases by about 10% on average, when a country moves from the 25th to the 75th percentile as a result of higher political stability and credit quality, lower inflation and inflation risk, and lower illiquidity. The 10% increase in integration leads to, on average, a decrease in the sovereign cost of funding of about 1% per annum.

Keywords: Credit Default Swap, credit quality, liquidity risk, macroeconomic risk, political stability, sovereign bond market integration, sovereign funding cost

JEL Classification: G15, G12, E44, F31, C5

Suggested Citation

Chaieb, Ines and Errunza, Vihang R. and Gibson, Rajna, Measuring Sovereign Bond Market Integration (March 16, 2017). Swiss Finance Institute Research Paper No. 16-52. , Forthcoming, Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=2818266 or http://dx.doi.org/10.2139/ssrn.2818266

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-4056 (Phone)
514-398-3876 (Fax)

Rajna Gibson

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41.22.379.89.83 (Phone)

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