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Putting the “C” into crisis: Contagion, correlations and copulas on EMU bond markets

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  • Philippas, Dionisis
  • Siriopoulos, Costas

Abstract

We investigate the contagion appetite generated by the current debt crisis in Greece by focusing on six European Monetary Union bond markets, namely the Netherlands, Germany, Italy, Spain, Portugal and France. We use a framework that contains two procedures, a spillover regime/switching model and a time-varying copula model. The empirical evidence confirms contagion appetite to European Monetary Union countries, which are prone to contagion, some because of their excessive macroeconomic imbalances and others because of the sovereign's risk perception and the arbitrage appetites of international bond portfolios; but not an overall contagion effect from the crisis country to all others.

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  • Philippas, Dionisis & Siriopoulos, Costas, 2013. "Putting the “C” into crisis: Contagion, correlations and copulas on EMU bond markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 161-176.
    • Handle: RePEc:eee:intfin:v:27:y:2013:i:c:p:161-176
    DOI: 10.1016/j.intfin.2013.09.008
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    More about this item

    Keywords

    Bond markets; Contagion; Spillover effects; Correlation; Copula;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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