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Article
Publication date: 4 August 2021

Jens Klose

This paper aims to introduce a new indicator to measure redenomination risks in Euro area countries. The measure is based on survey data. The influence of this indicator…

Abstract

Purpose

This paper aims to introduce a new indicator to measure redenomination risks in Euro area countries. The measure is based on survey data. The influence of this indicator in determining sovereign bond yield spreads is estimated.

Design/methodology/approach

An autoregressive distributed lag approach is used to estimate the effects of redenomination risks on sovereign bond yields. Additional control variables are added.

Findings

The results for 10 European Economic and Monetary Union (EMU) countries in the period June 2012 to May 2019 show that the risk of depreciation is almost abandoned for most Euro area countries, i.e. the former crisis countries Ireland and Portugal. If anything an appreciation may occur for some countries once they leave the EMU. The only countries facing depreciation problems once leaving the monetary union are Italy and to some extent Spain.

Originality/value

With this new indicator, the literature on sovereign bond determination and i.e. on redenomination risks is expanded by an additional approach. Moreover, this study is one of few also looking at the period after the most severe tensions of the sovereign debt crisis in the Euro area in 2012.

Details

Studies in Economics and Finance, vol. 38 no. 5
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 21 August 2017

Miguel Rodriguez Gonzalez, Frederik Kunze, Christoph Schwarzbach and Christoph Dieng

This paper aims to investigate the long-term relationships of long-term European Monetary Union (EMU) government bond yields. From an asset managers’ or risk managers…

Abstract

Purpose

This paper aims to investigate the long-term relationships of long-term European Monetary Union (EMU) government bond yields. From an asset managers’ or risk managers’ perspective during the euro crisis, the relevance of sovereign credit and redenomination risk became a major issue. Furthermore, it has to be differentiated between core and non-core EMU member countries.

Design/methodology/approach

Methods of applied time series analysis are used to investigate EMU government bond yields and EMU government bond yield spreads for Spain, Italy, The Netherlands, Austria and Germany. Both standard unit root testing procedures and breakpoint unit root tests are used to examine cointegrating relationships and structural changes in these relationships.

Findings

The empirical results deliver clear evidence for structural shifts in the long-term relationship between German and the two non-core EMU countries (Italy and Spain). The timing of the breaks coincides with the timing of the euro crisis. On the contrary, the results for Austria and The Netherlands are different from the findings for the two non-core countries.

Research limitations/implications

One major limitation of the study is the limited availability of data regarding to the reaction of asset managers or risk managers to the euro crisis. Especially in the context of the discussion with regard to the relevant risk-free rate for investors, this strand of research is relatively new.

Practical implications

A deeper understanding of changes in the long-term relationship between government bond yields and the re-emergence of redenomination risk is important for asset managers and risk managers in the financial services industry. This is especially true for German life insurers.

Originality/value

The study provides various empirical contributions to the literature on the euro crisis and sovereign credit risk. First, previous results with regard to the structural changes in the long-term relationship between German and Spanish, German and Italian, German and Austrian as well as Germany and Dutch government bond yields are confirmed using unit root breakpoint tests. Second, investigating the autoregressive coefficient and the timing of the breaks delivers evidence that non-core countries have been more exposed to the fear of redenomination risk. Third, we raise the question which risk free interest rate is relevant for the affected countries.

Details

The Journal of Risk Finance, vol. 18 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 21 August 2017

Mario Gruppe, Tobias Basse, Meik Friedrich and Carsten Lange

This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some…

Abstract

Purpose

This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some governments in Europe.

Design/methodology/approach

Relevant empirical papers are identified and reviewed focusing on time series analysis techniques.

Findings

The introduction of the euro has caused interest rate convergence among European Monetary Union (EMU) government bond yields. However, now sovereign credit risk and possibly even redenomination risk have caused divergences in European bond markets.

Research limitations/implications

A major limitation is that a relatively new field of the literature is surveyed. However, there are enough papers of relevance. This review paper could therefore be helpful in finding new approaches for additional empirical research examining the EMU bond market.

Originality/value

The results of empirical studies in a relatively new field of the literature are summarized. There meanwhile are some relevant papers. A brief survey of the results of these papers is provided. Important empirical findings with regard to interest rate convergence, sovereign credit risk and redenomination risk in the EMU are discussed and evaluated. The review is especially helpful for researchers and practitioners in the field of managerial finance and risk managers in the financial services industry.

Details

The Journal of Risk Finance, vol. 18 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 6 October 2021

Richard Watt and Philip Gunby

The Arrow–Pratt approximation to the risk premium is only valid for small risks. In this paper we consider a second approximation, based on risk-neutral probabilities and…

Abstract

Purpose

The Arrow–Pratt approximation to the risk premium is only valid for small risks. In this paper we consider a second approximation, based on risk-neutral probabilities and which requires no greater information than the Arrow–Pratt approximation, that works well for both small and large risks.

Design/methodology/approach

The paper is theoretical in nature, although it also provides illustrative numerical simulations.

Findings

The new approximation proposed here appears to be significantly superior to Arrow–Pratt for approximating the true value of the risk premium when the risk is large. It may also approximate better even for relatively small risks.

Originality/value

As far as we are aware, there are no other known approximations for the risk premium when the risk involved is large.

Details

The Journal of Risk Finance, vol. 22 no. 3/4
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 14 May 2018

Nashat Mahmoud Jaradt and Ijaz Ur Rehman

This research aims to focus on what has happened in light of the Greece legal crisis in terms of international contracts and what legal situations have arisen.

Abstract

Purpose

This research aims to focus on what has happened in light of the Greece legal crisis in terms of international contracts and what legal situations have arisen.

Design/methodology/approach

This research focuses on what has happened in light of the Greek legal crisis in terms of international contracts and what legal situations have arisen. The overall situation in relation to international contracts and risk mitigation is discussed to analyze the efforts that have been made. The state of affairs in the country with regard to facilitating financial trade and enabling Greeks to send payments abroad or at the rate they need to is also explored.

Findings

The effects of financial crisis on international trade contracts as they relate to commercial businesses without taking into consideration the wider contractual obligations that Greece, as a country, have already defaulted on. The crux of the current crisis is the fact that Greece did not stick to the commitments it made to the European Union when it joined the eurozone and took on euro as their currency, replacing the drachma. It is important to understand that due to the scope of the economic crisis in the Greece, it is not simply the other contractual party’s creditworthiness and trustworthiness that are at issue, it is their ability to keep any promises in whatever climate arises in their country.

Research limitations/implications

The study is based on the financial crisis in Greek. Further research is needed to investigate the applicability of the findings in different contexts.

Originality/value

The study findings are believed to be valuable for international commercial contracts with regard to the Greek debt crisis in discussing the financial legal situation, facilitating trade and enabling Greeks to send payments abroad or at the rate they need. The study contributes to a better understanding of international commercial contract system.

Details

International Journal of Law and Management, vol. 60 no. 3
Type: Research Article
ISSN: 1754-243X

Keywords

Content available
Article
Publication date: 2 March 2012

Craig Henry

743

Abstract

Details

Strategy & Leadership, vol. 40 no. 2
Type: Research Article
ISSN: 1087-8572

Expert briefing
Publication date: 10 April 2015

Exposure of euro-area countries to Greece through TARGET2.

Article
Publication date: 25 January 2022

Marco Fanari and Alberto Di Iorio

This work aims to study the break-even inflation rates (BEIRs), a widely used market-based measure of expected inflation. The authors focus on Italian Government bonds…

Abstract

Purpose

This work aims to study the break-even inflation rates (BEIRs), a widely used market-based measure of expected inflation. The authors focus on Italian Government bonds, one of the most liquid debt markets in the euro area.

Design/methodology/approach

The authors set up an auto-regressive distributed lag model and regress the BEIR on a set of variables that proxy inflation, market risk aversion, protection against deflation, credit as well as liquidity risk to get some insights into the importance of these factors. Subsequently, to disentangle market participants’ inflation expectations from their associated risk premia, the authors estimate a term structure model for the joint pricing of the Italian Government’s nominal and real yield curves, considering also a credit and a liquidity pricing factor.

Findings

The results show that BEIRs could be a misleading measure of the expected inflation due to the importance of the inflation risk premium and the credit risk effect. According to the estimates, the decrease of market-based measures of inflation observed in the last part of the sample period seems to reflect a lowering of both inflation expectations and risk premia. Inflation premia co-move with a measure of the tail risk of the long-term inflation distribution, signalling that investors become more concerned with downside risks.

Originality/value

This study complements the existing literature primarily based on the USA and euro area data focusing on the Italian market. To this end, the authors modify and adapt a well-known term structure model developed for nominal and real curves.

Details

Studies in Economics and Finance, vol. 39 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Expert briefing
Publication date: 22 October 2018

That plan -- sent to the Commission on October 15 -- encompasses a significant fiscal easing. The Italian government must reply by October 22.

Details

DOI: 10.1108/OXAN-DB239299

ISSN: 2633-304X

Keywords

Geographic
Topical
Expert briefing
Publication date: 23 August 2018

Venezuela’s economic adjustment, announced on August 17 by President Nicolas Maduro, has met with international scepticism. There is little confidence that the…

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