Time-varying importance of country and industry factors in European corporate bonds

The start of EMU and the global Önancial crisis constitute two major shocks to European Önancial market integration. Therefore, in this paper we study the time-varying importance of country versus industry factors in the European corporate bond market over a period that covers these two events. Using a unique dataset that is representative for the universe of actively quoted Eurobonds, we Önd that although unconditionally the country factor dominates the industry factor, there is substantial time variation. Following the introduction of the Euro, country factors become less important. The global Önancial crisis though reverses this trend and the country factor regains its importance in explaining bond returns