We employ asymmetric and nonlinear error correction models to characterize the price discovery and volatility interactions between the sovereign CDS and bond spreads for 22 reference entities. We find asymmetric, nonlinear, and bidirectional short and long‐run information flow in the first and second moments. The flow from the CDS to the bond market is stronger than in the reverse direction, demonstrating that CDS market is the more effective vehicle for price discovery. The persistence of volatility implies that informed trading occurs in the CDS markets. Both markets seem to converge to an equilibrium relationship when the basis is large.

Highlights • We find that sovereign CDS and bond markets are co-integrated. • The sovereign bond market mostly leads in price discovery by adjusting to new information regarding credit risk before CDS. • We find a positive correlation between financial integration and bond market information share. • Changes in sovereign credit risk and bond yields are influenced by common global factors. Abstract This study investigates the link between the price discovery dynamics in sovereign credit default swaps (CDS) and bond markets and the degree of financial integration of emerging markets. Using CDS and sovereign bond spreads, the price discovery mechanism was tested using a vector error correction model. Financial integration is measured using news-based methods. We find that sovereign CDS and bond markets are co-integrated. In five out of seven sovereigns (71%), the bond market leads in price discovery by adjusting to new information regarding credit risk before CDS. In 29% of times, CDS markets are the source of price discovery. We also find a positive correlation of 0.67 between the degree of financial integration and the bond market information share. The evidence suggests that changes in sovereign credit risk and bond yields are significantly influenced by common external (global) factors, while country-specific factors play an insignificant role.

We use parametric and semi-parametric methods to explore the effects of structural breaks on long memory processes in nine US regional and national housing prices over the period from January 1991 to February 2014. The results reveal multiple structural breaks and differential break points across regions. The regional break points do not coincide with the national break suggesting a spatial pattern of the underlying determinants of regional housing prices. We find long memory in regional housing prices using the entire sample period, but the results are generally reversed in sub-samples (regimes) that incorporate structural breaks. Our evidence suggests that failure to account for structural breaks when testing for long memory can lead to incorrect inferences. The results, which proved robust to model specifications, have important implications for policy prescriptions, for market efficiency, and for the integration of regional housing markets.

This introductory article is an attempt to highlight some background information as well as some career highlights for Professor Geoffrey M. Lilley. Though an attempt has been made to describe some earlier activities, there is an emphasis on those achievements made after I crossed paths with Professor Lilley in 1964. In the next article in this special issue Bob Westley gives a much lengthier description of his collaborations with Professor Lilley at Cranfield College of Aeronautics in the 1940's and 50's. It must be left to others, including Professor Lilley himself, to expand on the brief biography and bibliography compiled here. I have kept the account very factual and that may make it somewhat dry reading, though the breadth of Professor Lilley's achievements may come as a surprise to some. It did to me. If I had chosen to include my recollections of Professor Lilley's many stories of his adventures around the world, this article would have been much much longer. Also, I could never do these stories justice, as Professor Lilley's skill as a raconteur is unrivalled. I hope that this article will give the reader some sense of Professor Lilley's contributions to aerospace engineering and science for more than seven decades.

This introductory article is an attempt to highlight some background information as well as some career highlights for Professor Geoffrey M. Lilley. Though an attempt has been made to describe some earlier activities, there is an emphasis on those achievements made after I crossed paths with Professor Lilley in 1964. In the next article in this special issue Bob Westley gives a much lengthier description of his collaborations with Professor Lilley at Cranfield College of Aeronautics in the 1940's and 50's. It must be left to others, including Professor Lilley himself, to expand on the brief biography and bibliography compiled here. I have kept the account very factual and that may make it somewhat dry reading, though the breadth of Professor Lilley's achievements may come as a surprise to some. It did to me. If I had chosen to include my recollections of Professor Lilley's many stories of his adventures around the world, this article would have been much much longer. Also, I could never do these stories justice, as Professor Lilley's skill as a raconteur is unrivalled. I hope that this article will give the reader some sense of Professor Lilley's contributions to aerospace engineering and science for more than seven decades.