Has political communication during the crisis impacted sovereign bond spreads in the euro area?

Mohl, Philipp; Sondermann, David

doi:10.1080/13504851.2012.674201

Cited by 50 publications

(45 citation statements)

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“…Although used much less frequently in the EMH literature, several studies have sought to investigate the extent to which relatively large changes in the price of particular financial assets or instruments have been associated with the publication of new information by the press, news agencies or relevant financial institutions (see, for example, Cutler et al 1989;Caporale et al 2014;Beetsma et al 2013;Büchel 2013;Mohl and Sondermann 2013;Afonso et al 2012;Mink and De Haan 2013). In some cases the focus has been on stock market prices in general and in others on the stock market value of selected banks.…”

Section: The Impact Of Newsmentioning

confidence: 98%

Behavioral Finance and Efficient Markets: What does the Euro Crisis Tell us?

Bird

Willett

2017

Open Econ Rev

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The crisis in the Eurozone between 2009 and 2015 provides an opportunity to test whether financial markets fully display the characteristics associated with the efficient market hypothesis or whether behavioral approaches which focus on excessive pessimism and confirmation bias also offer insights into the performance of markets. In this paper we test several important aspects of market behavior. Specifically we examine the extent to which large changes in risk premia amongst the countries that encountered crises were related to news. We also investigate whether the impact of good and bad news was symmetrical. Finally we explore whether changes in risk premia in Greece affected risk premia in other countries in an asymmetrical and biased way. We discover that while there is considerable evidence that financial markets often performed in an efficient way during the crisis, there are also important departures from this pattern that are consistent with the behavioral approach. Our findings imply that both the efficient and behavioral approaches are helpful when trying to understand how markets perform.

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Section: The Impact Of Newsmentioning

confidence: 98%

Behavioral Finance and Efficient Markets: What does the Euro Crisis Tell us?

Bird

Willett

2017

Open Econ Rev

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“…Also the content of news is found to be important, with bad news explaining upward pressures on spreads. Similarly, Mohl and Sondermann (2013) construct variables related to politicians' statements based on the frequency of statements reported by news agencies, without differentiating their content. This paper finds that more statements are correlated with increasing spreads and heightened conditional volatility, particularly when made by politicians from AAA-rated countries.…”

Section: Literature Reviewmentioning

confidence: 99%

The euro exchange rate during the European sovereign debt crisis – Dancing to its own tune?

Ehrmann

Osbat

Stráský

et al. 2014

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Information on all of the papers published in the ECB Working Paper Series can be found on the ECB's website, http://www.ecb. europa.eu/pub/scientific/wps/date/html/index.en.html Acknowledgements This paper presents the authors' personal opinions and does not necessarily reflect the views of the European Central Bank, the Bank of Estonia, the Eurosystem or the OECD. We thank Paolo Gambetti for research assistance, the editorial board and an anonymous referee of the ECB Working Paper Series as well as participants at seminars at the ECB, the Bank of Estonia, and a workshop at the Bank of Italy for useful comments. Terms of use: Documents in EconStor may Michael EhrmannEuropean Central Bank; e-mail: michael.ehrmann@ecb.europa.eu Chiara OsbatEuropean Central Bank; e-mail: chiara.osbat@ecb.europa.eu Jan StraskyOrganisation for Economic Co-operation and Development; e-mail: jan.strasky@oecd.org Lenno UuskülaBank of Estonia; e-mail: lenno.uuskyla@eestipank.ee AbstractThis paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions. JEL-codes: E52, E62, F31, F42, G14Keywords: exchange rates; fundamentals; announcements; sovereign debt crisis.1 Non-technical summaryDuring the entire European sovereign debt crisis, the exchange rate of the euro against many currencies has remained extremely volatile. Several commentators have attributed the evolution of the euro exchange rate not only to the economic fundamentals, but also to the public controversy among policy makers about the European sovereign debt crisis and possible remedies. The current paper studies the deter...

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“…This assumption retains a role for entrepreneurial and bank capitalists' net worth as a discipline devices. 27 See Holmstrom and Tirole [23]. 28 Limited liability ensures that no agent earns a negative return.…”

Section: Moral Hazard and Financial Contractmentioning

confidence: 99%

Sovereign risk, bank funding and investors’ pessimism

Faia

2017

Journal of Economic Dynamics and Control

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Data show that sovereign risk reduces liquidity, increases funding cost and risk of banks highly exposed to it. I build a model that rationalizes this fact. Banks act as delegated monitors and invest in risky projects and in risky sovereign bonds. As investors hear rumors of increased sovereign risk, they run the bank (via global games). Banks could rollover liquidity in repo market using government bonds as collateral, but as sovereign risk raises collateral values shrink. Overall banks' liquidity falls (its cost increases) and so does banks' credit. In this context noisy news (announcements with signal extraction) of consolidation policies are recessionary in the short run, as they contribute to investors and banks pessimism, and mildly expansionary in the medium run. The banks liquidity channel plays a major role in the fiscal transmission.JEL classification: E5, G3, E6.

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Has political communication during the crisis impacted sovereign bond spreads in the euro area?

Cited by 50 publications

References 8 publications

Behavioral Finance and Efficient Markets: What does the Euro Crisis Tell us?

Behavioral Finance and Efficient Markets: What does the Euro Crisis Tell us?

The euro exchange rate during the European sovereign debt crisis – Dancing to its own tune?

Sovereign risk, bank funding and investors’ pessimism

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