NDLI: The Robustness of the Sovereign-Bank Interconnection: Evidence from Contingent Claims Analysis

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The Robustness of the Sovereign-Bank Interconnection: Evidence from Contingent Claims Analysis

Content Provider	Scilit
Author	Ggmez-Puig, Marta Singh, Manish Sosvilla-Rivero, Simon
Copyright Year	2018
Description	Journal: SSRN Electronic Journal We analyze the interconnection between the sovereign and banking sector risk in the peripheral euro area countries over the 2004Q4-2013Q2 period. Applying the contingent claims methodology, we build indicators of sovereign and banking sector risk (incorporating both market and balance sheet based information) and assess their interconnection in comparison with existing market-based indicators of banking and sovereign distress. We use three different statistical measures of interconnection based on principal components analysis, Granger causality network and Diebold-Yilmaz's connectedness index, and apply them to quarterly credit risk data. The empirical results show strong connectedness and comovement between country-level banking and sovereign risk indicators. We find evidence of bi-directional bank-sovereign linkage for Spain and Italy during the European sovereign debt crisis period. For the late crisis period, we find weak interconnection and more divergence across the various risk indicators. Our findings also suggest that secondary and derivatives market indices are more driven by common underlying factors than are contingent claim based risk measures.
Related Links	http://diposit.ub.edu/dspace/bitstream/2445/120099/1/IR18-004_GomezPuig+Singh+Sosvilla.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3131426
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3131426
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2018-02-28
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Mathematical Social Sciences Sovereign Risk Bank Risk Sovereign-bank Nexus Contingent Claims
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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