CEU Electronic Theses and Dissertations, 2012
| Author | Csiffáry, Emília |
|---|---|
| Title | Explaining Sovereign Risk Premia: The Case Of Euro-Zone Countries 2005-2011 |
| Summary | In this thesis I analyse the effect of fiscal policy on two measures of sovereign risk premium, the bond spread and the CDS premia, and on the difference of the two, the so-called default swap basis, as this latter is not always zero, contradicting the no-arbitrage condition. From the several panel regression methods, I use the so-called Factor Augmented Panel (FAP), developed by Giannone and Lenza (2008), which introduces global factors with heterogenous effects on different countries. My results show that these heterogenous global factors are indeed significant explanators of the different risk premia and the default swap basis, even if I include country and time fixed-effects as well. As for the fiscal policy, the inflation rate, the primary deficit and the debt-to-GDP ratio all have significant positive effect on risk premia, meaning that as they increase, the risk premia increase, too. In case of the default swap basis, the following result is worth emphasizing: ceteris paribus as the CDS premium increases, the spread and the CDS premia get more and more in line on average; while on the other hand, the increase of pessimism on the financial markets ceteris paribus widens their difference. |
| Supervisor | Benczúr, Péter |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2012/csiffary_emilia.pdf |
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