This research proposes a Bayesian multivariate stochastic volatility model to analyze the dynamics of sovereign risk in eurozone CDS markets during the recent financial crisis. We follow a MCMC approach to parameters and latent variables estimation and provide evidence of significant volatility shifts in asset returns, strong simultaneous increases in cross-market correlations, as well as sharp declines in correlations patterns. Overall, these findings are highly consistent with various empirical characterizations of contagion put forward in the literature, allowing us to conclude that the recent financial crisis generated severe contagion effects in sovereign debt markets of eurozone countries

Sovereign Risk and Contagion Effects in the Eurozone: A Bayesian Stochastic Correlation Model

Casarin, R.;Sartore, D.;Tronzano, M.
2015-01-01

Abstract

This research proposes a Bayesian multivariate stochastic volatility model to analyze the dynamics of sovereign risk in eurozone CDS markets during the recent financial crisis. We follow a MCMC approach to parameters and latent variables estimation and provide evidence of significant volatility shifts in asset returns, strong simultaneous increases in cross-market correlations, as well as sharp declines in correlations patterns. Overall, these findings are highly consistent with various empirical characterizations of contagion put forward in the literature, allowing us to conclude that the recent financial crisis generated severe contagion effects in sovereign debt markets of eurozone countries
2015
Advances in Statistical Models for Data Analysis, Studies in Classification, Data Analysis, and Knowledge Organization
File in questo prodotto:
File Dimensione Formato  
ExchCladagCasarin152revised.pdf

non disponibili

Descrizione: cdscladag
Tipologia: Documento in Pre-print
Licenza: Accesso chiuso-personale
Dimensione 324.21 kB
Formato Adobe PDF
324.21 kB Adobe PDF   Visualizza/Apri

I documenti in ARCA sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/3661696
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? 1
social impact