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Quadrant categorization of spillover determinants of sovereign risk of BRICIT nations: a Bayesian approach

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  • Pawan Kumar

    (Dublin City University)

  • Vipul Kumar Singh

    (Indian Institute of Management, Mumbai (IIM Mumbai))

Abstract

This study investigates the determinants that drive the volatility of the credit default swaps (CDS) of BRICIT (Brazil, Russia, India, China, Indonesia, and Turkey) nations as a proxy measure for sovereign risk. On the existence of cointegration, an unrestricted error correction model integrated with the autoregressive distributed lag (ARDL) model is applied to measure the short-run and long-run dynamics empirically. The study utilizes the Bayesian global vector autoregression methodology for cross-border spillover estimation. The study also suggests a strategy for policymakers for quadrant categorization to mitigate risk arising from cross-border spillover. The result of ARDL indicates that the global macroeconomic variables affect the BRICIT CDS more than domestic macroeconomic determinants, with Indian CDS being the most sensitive to Fed tapering. Notably, China’s CDS is the most sensitive to shocks, with the CDS volatility primarily driven by China’s geopolitical risk. Russian CDS is more sensitive to real effective exchange rates due to severe ruble depreciation than crude oil, despite Russia being a major oil exporter. The quadrant categorization indicates that the Indonesian stock market index is most interconnected with BRICIT CDS, while the Turkish long-term interest rates send the highest intensity spillover across BRICIT nations.

Suggested Citation

  • Pawan Kumar & Vipul Kumar Singh, 2025. "Quadrant categorization of spillover determinants of sovereign risk of BRICIT nations: a Bayesian approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-22, December.
  • Handle: RePEc:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-024-00699-z
    DOI: 10.1186/s40854-024-00699-z
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    More about this item

    Keywords

    Bayesian global vector autoregression (B-GVAR); BRICIT (Brazil; Russia; India; China; Indonesia and Turkey); Credit default swaps (CDS); Sovereign risk; Spillover;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F6 - International Economics - - Economic Impacts of Globalization
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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