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- 26 August 2009
- WORKING PAPER SERIES - No. 1079Details
- The main objective of this paper is to study whether the introduction of the euro had an impact on the degree of integration of European Government bond markets. We adopt the CAPM-based model of Bekaert and Harvey (1995) to compare, from the beginning of Monetary Union until June 2008, the differences in the relative importance of two sources of systemic risk (world and Eurozone risk) on Government bond returns, in the two groups of countries (EMU and non-EMU) in EU-15. Our empirical evidence suggests that the impact of the introduction of the euro on the degree of integration of European Government bond markets was important. The markets of the countries that share a monetary policy are less vulnerable to the influence of world risk factors, and more vulnerable to EMU risk factors. However, euro markets are only partially integrated, since they are still segmented and present differences in market liquidity or default risk. For their part, the countries that decided to stay out of the Monetary Union present a higher vulnerability to external risk factors.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets