Costantini, Mauro and Sousa, Ricardo M. (2022) What uncertainty does to euro area sovereign bond markets: Flight to safety and flight to quality. Journal of International Money and Finance, 122. ISSN 0261-5606
Full text not available from this repository.Abstract
We use a panel of 10 euro area countries over the period 1996Q1-2017Q4 to show that heightened uncertainty leads to (i) a flight to “safety” and (ii) a flight to “quality” in sovereign bond markets. Global, macroeconomic and the common euro area uncertainty outperform country-level, financial and euro area idiosyncratic uncertainty in forecasting sovereign bond risk premia, respectively. A rise in economic policy uncertainty also pushes investors to demand a disproportionately larger premium to hold “risky” bonds versus the “safe-haven” bond. Finally, business and economic related uncertainty is of first-order importance, while politics and government uncertainty plays a somewhat secondary role. Our results are robust to yield curve inversions, risk rating metrics, (non-standard) monetary policy conditions and the occurrence of sovereign debt crises.
| Item Type: | Article |
|---|---|
| Additional Information: | Funding Information: NIPE’s work is financed by National Funds of the FCT - Portuguese Foundation for Science and Technology within the project “UIDB/ECO/03182/2020”. Publisher Copyright: © 2021 Elsevier Ltd |
| Divisions: | Economics |
| Date Deposited: | 07 May 2024 13:54 |
| Last Modified: | 16 Nov 2024 07:21 |
| URI: | http://eprints.lse.ac.uk/id/eprint/122960 |
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