Sovereign credit risk co-movements in the Eurozone : simple interdependence or contagion?
Title: Sovereign credit risk co-movements in the Eurozone : simple interdependence or contagion?
Citation: International finance, 2016, Vol. 19, No. 3, pp. 246–268
ISSN: 1367-0271; 1468-2362
We investigate credit risk co-movements and contagion in the sovereign debt markets of 17 industrialized countries during the period 2008–2012. We use dynamic conditional correlations of sovereign credit default swap spreads to detect contagion. This approach allows us to separate contagion channels from the determinants of simple interdependence. The results show that, first, sovereign credit risk co-moves considerably, particularly among eurozone countries and during the sovereign debt crisis. Second, contagion varies across time and countries. Third, similarities in economic fundamentals, cross-country linkages in banking and common market sentiment constitute the main channels of contagion.
First published: 14 December 2016
Earlier different version: http://hdl.handle.net/1814/32105
Version: Is based on author's EUI PhD thesis, 2014
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