A Primer on Financial Contagion

Pericoli, Marcello; Sbracia, Massimo

doi:10.1111/1467-6419.00205

Cited by 555 publications

(305 citation statements)

References 54 publications

(76 reference statements)

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“…They distinguish the effects of bad and good news (a procedure we also follow in our methodological part). A second strand is in relevance to contagion and co-movements in financial markets (Pericoli and Sbracia, 2003). Ahmad et al (2013) investigate contagion effects between daily returns on developed markets of Greece, Ireland, Portugal, Spain and Italy, the USA, the UK and Japan, and daily returns on emerging stock markets of BRIICKS (Brazil, Russia, India, Indonesia, China, South Korea and South Africa) during the European debt crisis.…”

Section: Introductionmentioning

confidence: 99%

Media sentiment and CDS spread spillovers: Evidence from the GIIPS countries

Apergis

Lau

Yarovaya

2016

International Review of Financial Analysis

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This study explores the role of newswire messages during the European debt crisis. It quantifies how this news metric, revealed by statements recorded by newspapers articles, affects CDS spillovers across five European countries with sovereign debt problems and strict bail-out programs, i.e. Greece, Ireland, Italy, Portugal, and Spain with daily data spanning the period 2009-2012. Using panel ARDL and asymmetric conditional volatility modelling, the empirical findings document that the news variable generates significant spillover effects across the underlined CDS markets. These findings cast a cloudy doubt on the effectiveness of economic modeling on which CDS spreads are based.

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Section: Introductionmentioning

confidence: 99%

Media sentiment and CDS spread spillovers: Evidence from the GIIPS countries

Apergis

Lau

Yarovaya

2016

International Review of Financial Analysis

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“…Among others, we cite Pericoli and Sbracia (2003), Dungey et al (2005), and Pesaran and Pick (2007) and Forbes(2012). We concentrate here on those papers that have measured the degree of co-movement among bond spreads and among sovereign CDS.…”

Section: Introductionmentioning

confidence: 99%

Measuring Sovereign Contagion in Europe

et al. 2015

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This paper analyzes sovereign risk shift-contagion, i.e. positive and significant changes in the propagation mechanisms, using bond yield spreads for the major Eurozone countries. By emphasizing the use of two econometric approaches based on quantile regressions (standard quantile regression and Bayesian quantile regression with heteroskedasticity) we find that the propagation of shocks in euro's bond yield spreads shows almost no presence of shiftcontagion in the sample periods considered (2003-2006, Nov. 2008-Nov. 2011, Dec. 2011-Apr. 2013).Shock transmission is no different on days with big spread changes and small changes. This is the case even though a significant number of the countries in our sample have been extremely affected by their sovereign debt and fiscal situations.The risk spillover among these countries is not affected by the size or sign of the shock, implying that so far contagion has remained subdued. However, the US crisis, does generate a change in the intensity of the propagation of shocks in the Eurozone between the 2003-2006 pre-crisis period and the Nov. 2008-Nov. 2011 post-Lehman one, but the coefficients actually go down, not up! All the increases in correlation we have witnessed over the last years come from larger shocks and the heteroskedasticity in the data, not from similar shocks propagated with higher intensity across Europe.These surprising, but robust, results emerge because this is the first paper, to our knowledge, in which a Bayesian quantile regression approach allowing for heteroskedasticity is used to measure contagion. This methodology is particularly well-suited to deal with nonlinear and unstable transmission mechanisms especially when asymmetric responses to sign and size are suspected. Measuring Sovereign Contagion in Europe April 2015Abstract This paper analyzes sovereign risk shift-contagion, i.e. positive and significant changes in the propagation mechanisms, using bond yield spreads for the major eurozone countries. By emphasizing the use of two econometric approaches based on quantile regressions (standard quantile regression and Bayesian quantile regression with heteroskedasticity) we find that the propagation of shocks in euro's bond yield spreads shows almost no presence of shift-contagion. All the increases in correlation we have witnessed over the last years come from larger shocks propagated with higher intensity across Europe.JEL Classification: E58, F34, F36, G12, G15.

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“…Thus, contagion undermines the basis of portfolio management. Pericoli and Sbracia (2003) present six definitions of contagions; the fifth, (shift) contagion, is relevant for the approach taken here. Shift contagion entails a change in the transmission of financial activity between markets.…”

Section: Contagionmentioning

confidence: 99%

Baltic States and the Euro: a spectral analysis of the 2007 financial crisis

Gray

2012

International Journal of Managerial Finance

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Purpose -The purpose of this paper is to examine whether the banking crisis in the USA and Western Europe that began in August 2007 precipitated a change in the relationship between the currencies of the Baltic States and the Euro, such that it could be described as shift contagion. The paper also considers whether the "hardness" of the currency peg affects the market reaction to that crisis. Design/methodology/approach -Shift contagion is said to be revealed if there a change in the co-movements of exchange rates after August 2007 compared with before. Change is revealed by coherence and phase shifts. Both are drawn from cross-spectral analysis. Findings -Rather than weaken, the bonds between the currency board-managed Kroon and the Litas, in a similar way to the Lat, exhibited greater bonding after the banking crisis began compared with before. The phase angles suggest some shift in money flows between the Baltic currencies and the Euro. With the Lat, the delays appear to be the same but at longer periodicies. The other two appear be subject to a reversal of money flows at various periodicies. Research limitations/implications -Spectral analysis reveals that bonding between currencies of ERMII countries and the Euro increased, but the structure of money flows changed as a result of the Western banking crisis in related geographical and financial markets, before a local crisis became evident. To what extent this is an improvement over correlation methods could be the basis of further research. The phase switch is a structural change that other techniques could not have revealed. Originality/value -The paper shows that spectral analysis could be more widely used in financial economics to reveal the impact of events on term structures.

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A Primer on Financial Contagion

Cited by 555 publications

References 54 publications

Media sentiment and CDS spread spillovers: Evidence from the GIIPS countries

Media sentiment and CDS spread spillovers: Evidence from the GIIPS countries

Measuring Sovereign Contagion in Europe

Baltic States and the Euro: a spectral analysis of the 2007 financial crisis

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