Intraday dynamics of euro area sovereign credit risk contagion

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Publication date
07/2016
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01B - Magazine or newspaper article
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Bank for International Settlements Working Paper
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Issue / Number
573
Pages / Duration
1-35
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Bank for International Settlements
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Abstract
We examine the role of the CDS and bond markets during and before the recent euro area sovereign debt crisis as transmission channels for credit risk contagion between sovereign entities. We analyse an intraday dataset for GIIPS countries as well as Germany, France and central European countries. Our findings suggest that, prior to the crisis, the CDS and bond markets were similarly important in the transmission of sovereign risk contagion, but that the importance of the bond market waned during the crisis. We find flight-to-safety effects during the crisis in the German bond market that are not present in the pre-crisis sample. Our estimated sovereign risk contagion was greater during the crisis, with an average timeline of one to two hours in GIIPS countries. By using an exogenous macroeconomic news shock, we can show that, during the crisis period, increased credit risk was not related to economic fundamentals. Further, we find that central European countries were not affected by sovereign credit risk contagion, independent of their debt level and currency.
Keywords
credit, contagion, spillover
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1020-0959
1682-7678
Language
English
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No
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Published
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Peer review of the complete publication
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Citation
TERS, Kristyna, Lubos KOMAREK und Jörg URBAN, 2016. Intraday dynamics of euro area sovereign credit risk contagion. Bank for International Settlements Working Paper. Juli 2016. Nr. 573, S. 1–35. Verfügbar unter: http://hdl.handle.net/11654/24355