Fragmentation and heterogeneity in the euro-area corporate bond market: Back to normal? |
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| Institution: | 1. MN Chair in Pension Economics, University of Amsterdam, Netherlands;2. European Fiscal Board, Brussels, Belgium;3. CEPR, United Kingdom;4. CESifo, Germany;5. Tilburg University, Netherlands;6. University of Amsterdam, Netherlands;7. ASR Vermogensbeheer, Netherlands;1. Department of Economics, Finance and Accounting, Management School, University of Liverpool, UK;2. Research Department, MARZOTTO SIM S.P.A., Italy;1. KAIST, Graduate School of Finance, 87 Hoegiro, Dongdamoongu, Seoul 130-722, South Korea;2. HEC Montreal, 3000 Chemin de la Côte-Sainte-Catherine, Montréal, Québec H3T 2A7, Canada |
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| Abstract: | We assess the degree of market fragmentation in the euro-area corporate bond market by disentangling the determinants of the risk premium paid on bonds at origination. By looking at over 2400 bonds we are able to isolate the country-specific effects which are a suitable indicator of the market fragmentation. We find that, after peaking during the sovereign debt crisis, fragmentation shrank in 2013 and receded to pre-crisis levels only in 2014. However, the low level of estimated market fragmentation is coupled with a still high heterogeneity in actual bond yields, challenging the consistency of the new equilibrium. |
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| Keywords: | Corporate bond market Sovereign debt crisis Financial fragmentation G32 G38 |
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