Transmission of the Greek crisis on the sovereign debt markets in the euro area

Kchaou, Oussama; Bellalah, Makram; Tahi, Sofiane

doi:10.1007/s10479-021-03938-z

Cited by 2 publications

(2 citation statements)

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“…A key finding of the analysis is that the European SovCDS market is prone to contagion effects. This result is in line with those of Blommestein et al (2016), Kchaou et al (2022), Kıs ¸la et al (2022), and Ge (2023. The spatial autoregressive coefficient is significant and positive for the entire sample, core countries, and periphery countries.…”

Section: Discussionsupporting

confidence: 87%

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Contagion in the Euro area sovereign CDS market: a spatial approach

Ben Abdallah,

Dabbou,

Gallali

2023

JRF

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PurposeThis paper explores whether the Euro-area sovereign credit default swap market is prone to contagion effects. It investigates whether the sharp increase in sovereign CDS spread of a given country is due to a deterioration of the macroeconomic variables or some form of contagion.Design/methodology/approachFor this purpose, the authors use an innovative approach, i.e. spatial econometrics. Although modeling spatial dependence is an attractive challenge, its application in the field of finance remains limited.FindingsThe empirical findings show strong evidence of spatial dependence highlighting the presence of pure contagion. Furthermore, evidence of wake-up call contagion-increased sensitivity of investors to fundamentals of neighboring countries and shift contagion-increased sensitivity to common factors are well recorded.Originality/valueThis study aims to study a crucial financial issue that gained increased research interest, i.e. financial contagion. A methodological contribution is made by extending the standard spatial Durbin model (SDM) to analyze and differentiate between several forms of contagion. The results can be used to understand how shocks are spreading through countries.

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