Testing for Regime Changes in Greek Sovereign Debt Crisis |
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Authors: | Nicholas Apergis Emmanuel Mamatzakis Christos Staikouras |
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Institution: | (1) Department of Banking and Financial Management, University of Piraeus, 80 Karaoli & Dimitriou, Piraeus, 18534, Greece;(2) Department of Economics, University of Piraeus, 80 Karaoli & Dimitriou, Piraeus, 18534, Greece;(3) Department of Accounting and Finance, Athens School of Economics and Business, 76 Patision Str, Athens, 10434, Greece |
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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 to 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. |
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