Does news on the euro area impact the sovereign yield spreads?
by Houssam Bouzgarrou; Tarek Chebbi
International Journal of Monetary Economics and Finance (IJMEF), Vol. 8, No. 1, 2015

Abstract: This paper presents the impact of news on euro area sovereign bond yield spreads vis-à-vis Germany at daily frequency. The analysis is conducted for both 5- and 10-year debts for the period from 15 May, 2012 until 23 April, 2014. An innovative aspect of the study lies in the use of 'Eurointelligence' newsflash to construct our news data. Our empirical analysis produces a number of novel results that support the evidence that news is an important driver for sovereign yield spreads. We specifically find that more news regarding the country-specific crisis raises the yield spreads. Moreover, we find that higher news in one selected country implies an increase in the yield spreads of other countries. Regarding volatility of debt market, it seems to be in most cases of analysis uncorrelated to news. Interesting implications emerge from this paper namely for the asset pricing and risk management.

Online publication date: Thu, 30-Apr-2015

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