Arbeitspapier

Sovereign bond risk premiums

Credit risk has become an important factor driving government bond returns. We therefore introduce an asset pricing model which exploits information contained in both forward interest rates and forward CDS spreads. Our empirical analysis covers euro-zone countries with German government bonds as credit risk-free assets. We construct a market factor from the first three principal components of the German forward curve as well as a common and a country-specific credit factor from the principal components of the forward CDS curves. We find that predictability of risk premiums of sovereign euro-zone bonds improves substantially if the market factor is augmented by a common and an orthogonal country-specific credit factor. While the common credit factor is significant for most countries in the sample, the country-specific factor is significant mainly for peripheral euro-zone countries. Finally, we find that during the current crisis period, market and credit risk premiums of government bonds are negative over long subintervals, a finding that we attribute to the presence of financial repression in euro-zone countries.

Sprache
Englisch

Erschienen in
Series: CFS Working Paper ; No. 2013/28

Klassifikation
Wirtschaft
Thema
Sovereign bond risk premiums
Market and credit risk factors
Financial repression

Ereignis
Geistige Schöpfung
(wer)
Dockner, Engelbert J.
Mayer, Manuel
Zechner, Josef
Ereignis
Veröffentlichung
(wer)
Goethe University Frankfurt, Center for Financial Studies (CFS)
(wo)
Frankfurt a. M.
(wann)
2013

Handle
URN
urn:nbn:de:hebis:30:3-325051
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Dockner, Engelbert J.
  • Mayer, Manuel
  • Zechner, Josef
  • Goethe University Frankfurt, Center for Financial Studies (CFS)

Entstanden

  • 2013

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