Sovereign Spreads: Global Risk Aversion, Contagion or Fundamentals?

Transmission of Financial Stress in Europe: The Pivotal Role of Italy and Spain, but not Greece

“…Caceres et al (2010) andEspinoza and Segoviano (2010) develop a methodology to strip out the price effect of risk aversion. Also, it is common practice to get the probabilities of default by dividing the level of the SCDS by its recovery rate.…”

Relation between regional uncertainty spillovers in the global banking system

“…In particular, Dungey et al (2005) provide a summary of empirical models of contagion up to 2005. More recent empirical work includes Diebold and Yilmaz (2009, Caceres et al (2010), Billio et al (2012), Claeys and Vasicek (2014), Lucas et al (2014), and Brownlees and Engle (2016). Of particular relevance for our paper is the work of Diebold and Yilmaz (2009 which influenced subsequent studies such as McMillan and Speight (2010), Bubák et al (2011), Fujiwara andTakahashi (2012), Klößner and Wagner (2014), Alter and Beyer (2014), Chau and Deesomsak (2014), Demirer et al (2015), and Fengler and Gisler (2015).…”

A Toolkit for Assessing Fiscal Vulnerabilities and Risks in Advanced Economies

“…A tool has been designed to quantify the dynamics of distress dependence between different sovereigns; it computes a spillover coefficient that measures the probability of sovereign distress in one country given default in another country. The methodology is based on empirical estimates of the linkages among different countries on the basis of sovereign CDS spreads as follows (see Caceres, Guzzo, and Segoviano, 2010): (1) for each country, marginal probabilities of default are extracted from each individual CDS spread series at each point in time;…”

“…To assess the dynamics of distress dependence among sovereigns the following linkages are estimated, using the sovereign CDS spreads as inputs (see Caceres et al, 2010). The probability of sovereign distress in country A given a default by country B-P(A/B)-is obtained in three steps:…”