Rien Wagenvoort
Sanne Zwart

uncovering the common risk-free rate in the european monetary union (replication data)

We introduce longitudinal factor analysis (LFA) to extract the common risk-free (CRF) rate from a sample of sovereign bonds of countries in a monetary union. Since LFA exploits the typically very large longitudinal dimension of bond data, it performs better than traditional factor analysis methods that rely on the much smaller cross-sectional dimension. European sovereign bond yields for the period 2006-2011 are decomposed into a CRF rate, a default risk premium and a liquidity risk premium. Our empirical findings suggest that investors chase both credit quality and liquidity, and that they price double default risk on credit default swaps.

Data and Resources

Suggested Citation

Wagenvoort, Rien; Zwart, Sanne (2014): UNCOVERING THE COMMON RISK-FREE RATE IN THE EUROPEAN MONETARY UNION (replication data). Version: 1. Journal of Applied Econometrics. Dataset. http://dx.doi.org/10.15456/jae.2022321.0713863940