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Modeling Transmissions of Volatility Shocks: Application to CDS Spreads during the Euro Area Sovereign Crisis

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  • Makram Bellalah

    (CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908 - UPJV - Université de Picardie Jules Verne)

  • H. Boussada

Abstract

This paper tests empirically the contagion and the transmission mechanism of shocks in volatility between the peripheral Eurozone countries. We use the sovereign CDS spreads and the asymmetric model of dynamic conditional correlation GARCH DCC. We investigate the effects of positive and negative shocks over the long term. We investigate the systemic nature of the crisis in Europe. We implement testing of the non-linearity of propagation mechanisms of shocks through a long-term interdependence VECM model (Johansen co-integration). The generated results show that changes in the index of sovereign CDS have a very significant effect on changes in stock indexes in Europe. This is especially true in the case of Germany and France and the PIIGS countries.

Suggested Citation

  • Makram Bellalah & H. Boussada, 2016. "Modeling Transmissions of Volatility Shocks: Application to CDS Spreads during the Euro Area Sovereign Crisis," Post-Print hal-03680576, HAL.
    • Handle: RePEc:hal:journl:hal-03680576
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    Cited by:

    1. Mansi Jain & Gagan Deep Sharma & Mrinalini Srivastava, 2019. "Can Sustainable Investment Yield Better Financial Returns: A Comparative Study of ESG Indices and MSCI Indices," Risks, MDPI, vol. 7(1), pages 1-18, February.
    2. Ramiz ur Rehman & Muhammad Zain ul Abidin & Rizwan Ali & Safwan Mohd Nor & Muhammad Akram Naseem & Mudassar Hasan & Muhammad Ishfaq Ahmad, 2021. "The Integration of Conventional Equity Indices with Environmental, Social, and Governance Indices: Evidence from Emerging Economies," Sustainability, MDPI, vol. 13(2), pages 1-27, January.

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