Financial Contagion During Lehman Default and Sovereign Debt Crisis: An Empirical Analysis on Euro Area Bond and Equity Markets

Abstract Eurobonds, dubbed as Coronabonds in the context of the current coronavirus crisis, are being hotly debated among the euro area member states amid the COVID-19 pandemic. The debate is in many ways a retread of the euro area sovereign debt crisis of 2011–2012. As China’s “debt centralization/decentralization” experience is comparable with the introduction of Eurobonds in the European Union (EU) in terms of institutional mechanism design, we review our previous series of studies of China’s “debt centralization/decentralization” experience to shed some light on the Eurobonds debate. We obtain three key lessons. First, the introduction of Eurobonds in EU is likely to soften the budget constraint of the governments of the euro area member states. Second, it is also likely to strengthen the moral hazard incentives of the governments of the euro area member states to intentionally overstate their budget problems. Finally, the magnitudes of the moral hazard effects generated by the introduction of Eurobonds in EU are likely larger than their respective counterparts in China.

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Flight-to-Liquidity Flows in the Euro Area Sovereign Debt Crisis

SSRN Electronic Journal ◽

10.2139/ssrn.2538371 ◽

2014 ◽

Cited By ~ 7

Author(s):

Juan A. Garcia ◽

Ricardo Gimeno

Keyword(s):

Euro Area ◽

Sovereign Debt ◽

Debt Crisis ◽

Sovereign Debt Crisis

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The euro area sovereign debt crisis: Identifying flight-to-liquidity and the spillover mechanisms

Journal of Empirical Finance ◽

10.1016/j.jempfin.2013.12.003 ◽

2014 ◽

Vol 26 ◽

pp. 150-170 ◽

Cited By ~ 78

Author(s):

Roberto A. De Santis

Keyword(s):

Euro Area ◽

Sovereign Debt ◽

Debt Crisis ◽

Sovereign Debt Crisis

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On Financial Contagion Through ETFs

Recent Advances and Applications in Alternative Investments - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-7998-2436-7.ch004 ◽

2020 ◽

pp. 82-101

Author(s):

Alexia Thomaidou ◽

Dimitris Kenourgios

Keyword(s):

Financial Crisis ◽

Sovereign Debt ◽

Global Financial Crisis ◽

Debt Crisis ◽

Financial Contagion ◽

Sovereign Debt Crisis ◽

European Sovereign Debt Crisis ◽

The Interest Rate ◽

The Global Financial Crisis ◽

The Impact

This chapter investigates the impact of the Global Financial Crisis and the European Sovereign Debt Crisis in ETFs across regions and segments. In particular, two tests are taking place, with the first one to examine if there is evidence of contagion effect and the second one to test the affection of risks in each pair of ETFs. The evidence across the stable period and the two crisis periods suggests the existence of the transmission of shocks from the Global Financial ETF to regional and sectoral ETFs. However, there is evidence that some of the ETFs remain less unaffected during both crises and some of them are immune. Moreover, the authors examine the impact of several control variables, which represent various risks, to the correlation of each pair of ETFs and the results show the influence of the interest rate risk and interbank liquidity risk during the Global Financial Crisis and the European Sovereign Debt Crisis.

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