Open AccessThe Relevance of Liquidity and Country Risk to Euro-Denominated Bonds and the Influence of ECB Monetary Policy
Author(s) -
Arcuri Maria Cristina,
Gino Gandolfi,
Monteux Manoux,
Verga Giovanni
Publication year - 2021
Publication title -
international journal of economics and finance
Language(s) - English
Resource type - Journals
eISSN - 1916-9728
pISSN - 1916-971X
DOI - 10.5539/ijef.v13n6p1
Subject(s) - bond , market liquidity , monetary economics , monetary policy , corporate bond , economics , panel data , sovereignty , sample (material) , relevance (law) , financial system , finance , econometrics , political science , chemistry , chromatography , politics , law
This paper investigates the main determinants of euro denominated corporate bond yields, then analyses the “country effect” by focusing on economic reasons for the strong link between country and corporate yields. It also examines the potential impact of monetary policy of the European Central Bank (ECB) on corporate bond yields on the days of Governing Council meetings.
A sample of 1,762 corporate euro-country bonds is analyzed for the period May 2005 – January 2012 using OLS panel data. The economic reason for the strong link between countries and corporate yields is investigated up to 2017. We find that idiosyncratic liquidity and risk have a crucial impact on bond yields, but yields are also strongly influenced by the risk of the corresponding sovereign bonds. Finally, we show that unexpectedness component of ECB policy also exerts a strong short-term effect.