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Fundamentally wrong : market pricing of sovereigns and the Greek financial crisis

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journal contribution
posted on 03.12.2014, 14:43 by Heather D. Gibson, Stephen G. Hall, George S. Tavlas
We investigate the impact of the economic fundamentals, sovereign credit ratings, political uncertainty, and the ECB's Securities Markets Program (SMP) on Greek sovereign spreads. Our findings show that sovereign downgrades and political uncertainty appear to have been drivers of the sharp rises in Greek sovereign spreads from 2008-2009 onwards, over-and-above the impact of the economic fundamentals. Our findings also show that prior to 2008-2009, the markets failed to incorporate Greece's deteriorating fundamentals into the price of Greek sovereigns. We demonstrate that, once markets reassessed their pricing of Greek credit risk, the change in the influence of the fundamentals came swiftly and abruptly, exhibiting overshooting characteristics. The SMP reduced spreads while it was in operation.

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Citation

Journal of Macroeconomics, 2014, 39 (Part B), pp. 405-419

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCE/Department of Economics

Version

AM (Accepted Manuscript)

Published in

Journal of Macroeconomics

Publisher

Elsevier

issn

0164-0704

Copyright date

2013

Available date

22/08/2015

Publisher version

http://www.sciencedirect.com/science/article/pii/S0164070413001286

Language

en

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