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

See all articles by Fabrizio Durante

Fabrizio Durante

University of Salento

Enrico Foscolo

Free University of Bozen-Bolzano

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: December 31, 2015

Abstract

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

Durante, Fabrizio and Foscolo, Enrico and Weissensteiner, Alex, Dependence between Stock Returns of Italian Banks and the Sovereign Risk (December 31, 2015). Econometrics 2017, 5(23), 1-14. Available at SSRN: https://ssrn.com/abstract=2124934 or http://dx.doi.org/10.2139/ssrn.2124934

Fabrizio Durante

University of Salento ( email )

via Taranto 35
Piazza Tancredi, N.7
Lecce, Lecce 73100
Italy

Enrico Foscolo (Contact Author)

Free University of Bozen-Bolzano ( email )

Universitätsplatz 1 - piazza Università, 1
Bozen-Bolzano, Bozen 39100
Italy

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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