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The impact of distressed economies on the EU sovereign market

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The impact of distressed economies on the EU sovereign market. / Groba, Jonatan; Lafuente, Juan Angel; Serrano, Pedro.

In: Journal of Banking and Finance, Vol. 37, No. 7, 07.2013, p. 2520-2532.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

Groba, J, Lafuente, JA & Serrano, P 2013, 'The impact of distressed economies on the EU sovereign market', Journal of Banking and Finance, vol. 37, no. 7, pp. 2520-2532. https://doi.org/10.1016/j.jbankfin.2013.02.003

APA

Groba, J., Lafuente, J. A., & Serrano, P. (2013). The impact of distressed economies on the EU sovereign market. Journal of Banking and Finance, 37(7), 2520-2532. https://doi.org/10.1016/j.jbankfin.2013.02.003

Vancouver

Groba J, Lafuente JA, Serrano P. The impact of distressed economies on the EU sovereign market. Journal of Banking and Finance. 2013 Jul;37(7):2520-2532. doi: 10.1016/j.jbankfin.2013.02.003

Author

Groba, Jonatan ; Lafuente, Juan Angel ; Serrano, Pedro. / The impact of distressed economies on the EU sovereign market. In: Journal of Banking and Finance. 2013 ; Vol. 37, No. 7. pp. 2520-2532.

Bibtex

@article{c22d03f001214cd7a3db5a550fb36b1c,
title = "The impact of distressed economies on the EU sovereign market",
abstract = "Financially distressed economies inside the European Union (EU) are being blamed for producing a general increase in borrowing costs. This article analyzes the channels of default risk transmission within the EU countries using the information content in the sovereign Credit Default Swap (CDS) market. We proceed in two directions. First, we test the existence of cross-border volatility effects between the central and the peripheral EU countries. Second, we explore the effect of distressed economies on the default and risk premium constituents of sovereign default swaps. We show a significant volatility spillover from distressed to central European Economic and Monetary Union (EMU) economies. This causality pattern leads to a significant impact on the default swap risk premia. On average, the risk premium accounts for approximately 42% of central EMU spreads and 56% of the spreads for those countries outside of the EMU. The peripheral risk also affects the default component of central economies, although its impact is lower.",
keywords = "sovereign CDS, volatility transmission, default risk premium",
author = "Jonatan Groba and Lafuente, {Juan Angel} and Pedro Serrano",
year = "2013",
month = jul,
doi = "10.1016/j.jbankfin.2013.02.003",
language = "English",
volume = "37",
pages = "2520--2532",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier",
number = "7",

}

RIS

TY - JOUR

T1 - The impact of distressed economies on the EU sovereign market

AU - Groba, Jonatan

AU - Lafuente, Juan Angel

AU - Serrano, Pedro

PY - 2013/7

Y1 - 2013/7

N2 - Financially distressed economies inside the European Union (EU) are being blamed for producing a general increase in borrowing costs. This article analyzes the channels of default risk transmission within the EU countries using the information content in the sovereign Credit Default Swap (CDS) market. We proceed in two directions. First, we test the existence of cross-border volatility effects between the central and the peripheral EU countries. Second, we explore the effect of distressed economies on the default and risk premium constituents of sovereign default swaps. We show a significant volatility spillover from distressed to central European Economic and Monetary Union (EMU) economies. This causality pattern leads to a significant impact on the default swap risk premia. On average, the risk premium accounts for approximately 42% of central EMU spreads and 56% of the spreads for those countries outside of the EMU. The peripheral risk also affects the default component of central economies, although its impact is lower.

AB - Financially distressed economies inside the European Union (EU) are being blamed for producing a general increase in borrowing costs. This article analyzes the channels of default risk transmission within the EU countries using the information content in the sovereign Credit Default Swap (CDS) market. We proceed in two directions. First, we test the existence of cross-border volatility effects between the central and the peripheral EU countries. Second, we explore the effect of distressed economies on the default and risk premium constituents of sovereign default swaps. We show a significant volatility spillover from distressed to central European Economic and Monetary Union (EMU) economies. This causality pattern leads to a significant impact on the default swap risk premia. On average, the risk premium accounts for approximately 42% of central EMU spreads and 56% of the spreads for those countries outside of the EMU. The peripheral risk also affects the default component of central economies, although its impact is lower.

KW - sovereign CDS

KW - volatility transmission

KW - default risk premium

U2 - 10.1016/j.jbankfin.2013.02.003

DO - 10.1016/j.jbankfin.2013.02.003

M3 - Journal article

VL - 37

SP - 2520

EP - 2532

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

IS - 7

ER -