Regulatory Changes and Long-run Relationships of the EMU Sovereign Debt Markets: Implications for Future Policy Framework

33 Pages Posted: 28 Feb 2021

See all articles by Erdinc Akyildirim

Erdinc Akyildirim

ETH Zürich - Department of Mathematics

Shaen Corbet

Dublin City University ; University of Waikato - Management School

Duc Khuong Nguyen

IPAG Business School

Ahmet Sensoy

Borsa Istanbul

Date Written: January 1, 2021

Abstract

We estimate the time-varying long-run correlations of European sovereign bond markets to identify specific effects that are attributed to changing European regulatory and political dynamics over the last twenty years. Our empirical results from using the DCC-MIDAS methodology indicate that regulatory changes in Europe have created significant and negative impact on the long-run correlations within the month where the regulation is decided to be taken into action. This impact still remains in the following months and robust with respect to the trend component of the long-run correlations. A direct implication is that the more regulations the EU attempts to put in place, the lower the long-run convergence process of sovereign bond markets is. We then analyse the structural shifts in the long-run correlation dynamics with penalized contrasts methodology and try to find out the reasons of these severe changes. Accordingly, some of the structural shifts overlap with the dates of a limited number of regulatory changes, in addition to the major global economic and political events.

Suggested Citation

Akyildirim, Erdinc and Corbet, Shaen and Nguyen, Duc Khuong and Sensoy, Ahmet, Regulatory Changes and Long-run Relationships of the EMU Sovereign Debt Markets: Implications for Future Policy Framework (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=3758499 or http://dx.doi.org/10.2139/ssrn.3758499

Erdinc Akyildirim

ETH Zürich - Department of Mathematics ( email )

ETH Zentrum HG-F 42.1
Raemistr. 101
CH-8092 Zurich, 8092
Switzerland

Shaen Corbet (Contact Author)

Dublin City University ( email )

Dublin 9
Ireland

University of Waikato - Management School ( email )

Hamilton
New Zealand

Duc Khuong Nguyen

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

HOME PAGE: http://www.ipag.fr/en/

Ahmet Sensoy

Borsa Istanbul ( email )

Reşitpaşa mh.
Tuncay Artun cd.
Istanbul, 34467
Turkey

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