Dependence between Stock Returns of Italian Banks and the Sovereign Risk
Econometrics 2017, 5(23), 1-14
21 Pages Posted: 6 Aug 2012 Last revised: 1 Jul 2017
Date Written: December 31, 2015
We analyze the interdependence between the government yield spread and stock returns of the banking sector in Italy during the years 2003-2015. In a first step, we find that after September 2008 the Spearman's rank correlation between the yield spread and the Italian banking system changed significantly. According to this finding, we split the time window in two subperiods. While we show that the dependence between the banking industry and changes in the yield spread increased significantly in the second time interval, we find no contagion effects from changes in the yield spread to returns of the banking system.
Keywords: Financial sector, Rank correlation, Tail dependence, Sovereign credit risk, Italy
JEL Classification: C14, C58, C63
Suggested Citation: Suggested Citation