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Stability and risk contagion in the global sovereign CDS market under Russia-Ukraine conflict

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  • Shen, Yiran
  • Feng, Qianqian
  • Sun, Xiaolei

Abstract

As a leading indicator of sovereign debt risk, the performance of the sovereign CDS market during the Russia-Ukraine conflict deserves attention. This paper calculates the marginal net spillover index, constructs the sovereign CDS network based on the index, identifies the important countries in the network, and analyzes the network stability considering the differences in the roles of the countries in the network. By further analyzing the daily sovereign CDS network before and after the Russia-Ukraine conflict, we show the evolution pattern of the risk of the important countries in the network and the main risk contagion paths between countries. The paper shows that the Russia-Ukraine conflict significantly exacerbated the network’s overall risk level and instability. The major transmitters in the sovereign CDS network are characterized by the risk switch from receiving to transmitting, and the major receivers are characterized by the risk switch from latent to manifest. The risk contagion process is characterized by four stages: risk contagion to neighboring countries, risk exacerbation between Russia and Ukraine, further outward spillover, and weakening but persistent spillover. This study helps to provide a reference for investors to mitigate risk contagion in the sovereign CDS market.

Suggested Citation

  • Shen, Yiran & Feng, Qianqian & Sun, Xiaolei, 2024. "Stability and risk contagion in the global sovereign CDS market under Russia-Ukraine conflict," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001293
    DOI: 10.1016/j.najef.2024.102204
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    More about this item

    Keywords

    Sovereign CDS; Risk contagion; Russia-Ukraine conflict; Structure entropy; Evolutionary analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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