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OVERCROWDING VERSUS LIQUIDITY IN THE EURO SOVEREIGN BOND MARKETS
Author(s) -
Coppola Andrea,
Girardi Alessandro,
Piga Gustavo
Publication year - 2013
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1454
Subject(s) - market liquidity , bond , economics , monetary economics , government bond , currency , sovereignty , debt , bond market , financial system , finance , politics , political science , law
With the adoption of a common currency, the degree of substitution between financial instruments supplied by EMU Member States to finance their national debts has risen. Providing the market for euro‐denominated government securities with a large volume of similar financial instruments is likely to increase liquidity and lower yields. By contrast, providing an excessive volume of the same instrument might increase the return demanded by investors. This paper aims at empirically assessing the balance between liquidity and overcrowding effects by EMU countries' issuance plans. Our results document a significant relationship between bunching in issues and bond yields. Copyright © 2012 John Wiley & Sons, Ltd.