The first Greek bailout on April 11, 2010 triggered a significant reevaluation of sovereign credit risk across Europe. We exploit this event to examine the transmission of sovereign to corporate credit risk. A 10% increase in sovereign credit risk raises corporate credit risk on average by 1.1% after the bailout. The evidence is suggestive of risk spillovers from sovereign to corporate credit risk through a financial and a fiscal channel, as the effects are more pronounced for firms that are bank or government dependent. We find no support for indirect risk transmission through a deterioration of macroeconomic fundamentals.
This is the first empirical evidence on the competition between high-frequency traders (HFTs) and its influence on market quality. We exploit the first entries of international HFTs into the Swedish equity market in 2009 and conduct a difference-in-differences analysis using trade-by-trade data. To further identify the effect, we use the Federation of European Securities Exchanges (FESE) tick size harmonization as an exogenous event that caused HFTs to start trading in stocks. When HFTs compete for trades their liquidity consumption increases. As a result, liquidity deteriorates significantly and short-term volatility rises.
Discussion papers are research-based papers on policy relevant topics. They are singled out from standard Working Papers in that they offer a broader and more balanced perspective. While being partly based on original research, they place the analysis in the wider context of the literature on the topic. They also consider explicitly the policy perspective, with a view to develop a number of key policy messages. Their format offers the advantage that alternative analyses and perspectives can be combined, including theoretical and empirical work.Discussion papers are written in a style that is more broadly accessible compared to standard Working Papers. They are light on formulas and regression tables, at least in the main text.The selection and distribution of discussion papers are subject to the approval of the Director General of the Directorate General Research.
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