Disentangling contagion among sovereign CDS spreads during the European debt crisis

Broto, Carmen; Pérez‐Quirós, Gabriel

doi:10.1016/j.jempfin.2015.03.010

Cited by 79 publications

(37 citation statements)

References 37 publications

(56 reference statements)

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“…Although the SCI α is negative, which indicates that the dependence in the tails is smaller than in the center, we cannot claim that our findings are statistically significant in the second period (as also confirmed by the formal test of contagion shown in Figure 7). Therefore, in line with other papers (Caporin et al 2013;Forbes and Rigobon 2002;Serwa and Bohl 2005), we cannot claim that contagion effects caused the increased dependence in the recent past (compared to Broto and Perez-Quiros (2015); De Bruyckere et al (2013)). We repeated the same exercise for other EU countries.…”

Section: Data Empirical Investigation and Resultssupporting

confidence: 53%

Dependence between Stock Returns of Italian Banks and the Sovereign Risk

2017

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Abstract:We analyze the interdependence between the government yield spread and stock returns of the banking sector in Italy during the years [2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014][2015]. In a first step, we find that the Spearman's rank correlation between the yield spread and the Italian banking system changed significantly after September 2008. According to this finding, we split the time window in two sub-periods. While we show that the dependence between the banking industry and changes in the yield spread increased significantly in the second time interval, we find no contagion effects from changes in the yield spread to returns of the banking system.

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Section: Data Empirical Investigation and Resultssupporting

confidence: 53%

Dependence between Stock Returns of Italian Banks and the Sovereign Risk

2017

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“…However, this has been a reflection of interdependence rather than contagion. It was first fueled by Greece and then by Ireland and Portugal in a relay-race manner (Caporin et al 2013;Broto and Perez-Quiros 2013).…”

Section: _________________________mentioning

confidence: 99%

The Causal Linkages between Sovereign CDS Prices for the BRICS and Major European Economies

Stolbov

2014

Economics

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The article examines causal relationships between sovereign credit default swaps (CDS) prices for the BRICS and most important EU economies (Germany, France, the UK, Italy, Spain) during the European debt crisis. The cross-correlation function (CCF) approach that distinguishes between causality-in-mean and causality-in-variance and the BreitungCandelon causality test in the frequency domain are used in the research. Both tests reveal limited dependence of the BRICS CDS (especially, in the case of Brazil, China and South Africa) on the EU CDS prices. Thus, the paper underscores the signs of decoupling in the sovereign CDS market and also supports the view that the European debt crisis has so far had a limited non-EU impact in this market. JEL C50 G10 G15

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“…22 The low number of observations calls for pooling country data to take advantage of both time series and crosscountry variation and for keeping the model as parsimonious as possible. Significant gaps in Greek data preclude its use on the econometric part 23 According to Alter and Beyer (2013) or Broto and Perez-Quiros (2013) contagion played a non-negligible role in peripheral countries. Heinz and Sun (2014) find that shocks to Spanish and Italian CDS delivered the largest spillovers.…”

Section: Sovereign Risk Modelmentioning

confidence: 99%

Bank and Sovereign Risk Feedback Loops

Erce¹

2015

SSRN Journal

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Measures of Sovereign and Bank Risk show occasional bouts of increased correlation, setting the stage for vicious and virtuous feedback loops. This paper models the macroeconomic phenomena underlying such bouts using CDS data for 10 euro-area countries. The results show that Sovereign Risk feeds back into Bank Risk more strongly than vice versa. Countries with sovereigns that are more indebted or where banks have a larger exposure to their own sovereign, suffer larger feedback loop effects from Sovereign Risk into Bank Risk. In the opposite direction, in countries where banks fund their activities with more foreign credit and support larger levels of non-performing loans, the feedback from Bank Risk into Sovereign Risk is stronger. According to model estimates, financial rescue operations can increase feedback effects from bank risk into sovereign risk. These results can be useful for the official sector when deciding on the form of financial rescues. ABSTRACT:Measures of Sovereign and Bank Risk show occasional bouts of increased correlation, setting the stage for vicious and virtuous feedback loops. This paper models the macroeconomic phenomena underlying such bouts using CDS data for 10 euro-area countries. The results show that Sovereign Risk feeds back into Bank Risk more strongly than vice versa. Countries with sovereigns that are more indebted or where banks have a larger exposure to their own sovereign, suffer larger feedback loop effects from Sovereign Risk into Bank Risk. In the opposite direction, in countries where banks fund their activities with more foreign credit and support larger levels of non-performing loans, the feedback from Bank Risk into Sovereign Risk is stronger. According to model estimates, financial rescue operations can increase feedback effects from bank risk into sovereign risk. These results can be useful for the official sector when deciding on the form of financial rescues.

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Disentangling contagion among sovereign CDS spreads during the European debt crisis

Cited by 79 publications

References 37 publications

Dependence between Stock Returns of Italian Banks and the Sovereign Risk

Dependence between Stock Returns of Italian Banks and the Sovereign Risk

The Causal Linkages between Sovereign CDS Prices for the BRICS and Major European Economies

Bank and Sovereign Risk Feedback Loops

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