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Bank-sovereign risk spillovers in EMU
Bank-sovereign risk spillovers in the Euro Area

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Singh, Manish K. and Gómez-Puig, Marta and Sosvilla-Rivero, Simón (2020) Bank-sovereign risk spillovers in EMU. Applied Economics Letters, 27 (8). pp. 642-646. ISSN 1466-4291

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Official URL: https://doi.org/10.1080/13504851.2020.1728225



Abstract

This paper investigates the cross-sectional spillovers between banking and sovereign risk in the European Economic and Monetary Union (EMU) countries. Average ‘distance-todefault’ based on all publicly listed banks headquartered in a particular country is used as an indicator of banking risk, while 10-year sovereign yield as the measure of sovereign risk. Using spillover measure proposed by Diebold and Yilmaz (2014), we find evidence of clustering among banks and sovereigns in peripheral and central countries. Except for peripheral countries banks, rest of the clusters are well isolated from each other.

Resumen (otros idiomas)

We investigate cross-sectional connectedness between Euro Area banking and sovereign risk. Average ‘distance-to- default’ based on all publicly listed banks headquartered in a particular country is used as an indicator of banking risk, while 10-year sovereign yield as the measure of sovereign risk. We find evidence of clustering among banks and sovereigns in peripheral and central countries. Except for peripheral countries banks, rest of the clusters are well isolated from each other.

Item Type:Article
Uncontrolled Keywords:Yield spreads, Bank risk, Spillover, Vector autoregression.
Subjects:Social sciences > Economics > Banks and credit unions
Social sciences > Economics > Econometrics
Social sciences > Economics > Finance
JEL:G13, G21, C58
ID Code:59945
Deposited On:15 Apr 2020 11:13
Last Modified:04 Jun 2020 17:02

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