Using connectedness analysis to assess financial stress transmission in EMU sovereign bond market volatility

Abstract

a b s t r a c tWe measure the connectedness in EMU sovereign market volatility between April 1999 and January 2014, monitoring stress transmission and identifing episodes of intensive spillovers from one country to the others. We first perform a static and dynamic analysis to measure the total volatility connectedness in the entire period using a framework recently proposed by Diebold and Yilmaz (2014). Second, we use a dynamic analysis to evaluate the net directional connectedness for each country and apply panel model techniques to investigate its determinants. Finally, we examine the time-varying behaviour of net pair-wise directional connectedness at different stages of the recent sovereign debt crisis.

Macro-uncertainty and financial stress spillovers in the Eurozone

“…In particular, the net spillover from the periphery macro-uncertainty and nancial stress group increases (respectively, from -3.9% to 1%, and from -4.5% to 1.3%, at H=4, see panel A.2) once we shift the focus from sub-sample to full sample analysis. These ndings are in line with Fernández-Rodríguez et al (2016) and De Santis and Zimic (2018), who nd a decline (increase) in directional connectedness from core (peripheral) to peripheral (core) countries during the sovereign debt crisis.…”

“…More specically, if we consider a forecast horizon equal to a year (H = 4), and if we shift the focus from sub-sample to full sample analysis (which includes the Eurozone sovereign debt crisis), then we observe a decrease in the spillovers from core to periphery countries (from 19.92% to 11.35%) and an increase in the spillovers from periphery to core countries (from 11.50% to 13.88%). If the focus is on a horizon equal to two years (H = 8), then spillovers from the periphery to core countries tend to increase from 12.88% to 17.33% when we shift from sub-sample to full sample analysis.Furthermore, in line with the empirical ndings ofFernández-Rodríguez et al (2016) andDe Santis and Zimic (2018), we observe a decrease (from 38.5% to 36.12%) in the degree of connectedness within core countries (the upper-left element) when we shift the focus from subsample to full sample analysis. However, in line withAntonakakis and Vergos (2013) and unlikeFernández-Rodríguez et al (2016) and to De Santis and Zimic (2018), we nd an increase (from 30% to 38.5%) in the degree of connectedness within PIIGS countries.…”

“…Evidence of bond market fragmentation due to the Eurozone sovereign debt crisis is given by Fernández-Rodríguez et al (2016) and by De Santis and Zimic (2018), who nd evidence of a decrease in connectedness among Eurozone sovereign yields.…”

“…Rodríguez et al (2016) and DeSantis and Zimic (2018). WhileAntonakakis and Vergos (2013) and Fernández-Rodríguez et al (2016) focus on the Eurozone sovereign bond yield spread and volatility, respectively, and they use the general impulse response approach, De Santis and Zimic (2018) use a structural VAR tted to Eurozone sovereign bond yields identied through sign restrictions.6.2.1 Core-periphery connectedness: the role of nancial stress and macro-uncertainty…”

Dynamic Connectedness of International Crude Oil Prices: The Diebold–Yilmaz Approach

“…Connectedness analysis using the full sample focuses on the static connectedness of crude oil prices, so it does not help us understand the dynamics of connectedness [33]. The following subsections discuss connectedness under rolling sample.…”