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Oil price bubbles: The role of network centrality on idiosyncratic sovereign risk

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  • Yang, Lu

Abstract

We investigate the effect of network centrality on idiosyncratic sovereign risk during oil price bubbles by constructing a high-dimensional network based on the data of 60 sovereign credit default swaps over 12 years. By specifying four types of centrality—degree, betweenness, closeness, and eigenvector—for each node in the network, we determine that idiosyncratic sovereign risk increases during oil bust periods and decreases during oil boom periods. We also identify the core–periphery structure of the sovereign default network, which leads to an asymmetric effect on idiosyncratic sovereign risks across bubble episodes. Our findings demonstrate that idiosyncratic sovereign risk transforms into systematic sovereign risk during oil price boom periods and that idiosyncratic contagion occurs during oil price bust periods. Our results emphasize the importance of sovereign default networks in the transmission of idiosyncratic sovereign risk and systematic sovereign risk across bubble episodes.

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  • Yang, Lu, 2023. "Oil price bubbles: The role of network centrality on idiosyncratic sovereign risk," Resources Policy, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:jrpoli:v:82:y:2023:i:c:s0301420723002015
    DOI: 10.1016/j.resourpol.2023.103493
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    More about this item

    Keywords

    Oil price bubble; Network centrality; Sovereign credit default swaps; Idiosyncratic risk; Idiosyncratic contagion;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • 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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