Financial Stress Transmission in EMU Sovereign Bond Market Volatility: A Connectedness Analysis

36 Pages Posted: 4 Feb 2015

See all articles by Fernando Fernández Rodríguez

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: January 2015

Abstract

This paper measures the connectedness in EMU sovereign market volatility between April 1999 and January 2014, in order to monitor stress transmission and to identify episodes of intensive spillovers from one country to the others. To this end, we first perform a static and dynamic analysis to measure the total volatility connectedness in the entire period (the system-wide approach) using a framework recently proposed by Diebold and Yılmaz (2014). Second, we make use of a dynamic analysis to evaluate the net directional connectedness for each country and apply panel model techniques to investigate its determinants. Finally, to gain further insights, we examine the time varying behaviour of net pair-wise directional connectedness at different stages of the recent sovereign debt crisis.

Keywords: Sovereign debt crisis, Euro area, Market Linkages, Vector Autoregression, Variance Decomposition

JEL Classification: C53, E44, F36, G15

Suggested Citation

Fernández Rodríguez, Fernando and Gómez-Puig, Marta and Sosvilla-Rivero, Simon, Financial Stress Transmission in EMU Sovereign Bond Market Volatility: A Connectedness Analysis (January 2015). Available at SSRN: https://ssrn.com/abstract=2559669 or http://dx.doi.org/10.2139/ssrn.2559669

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

Campus de Tafira
E-35017 Las Palmas
Spain
+34 928 45 18 02 (Phone)
+34 928 45 18 29 (Fax)

Marta Gómez-Puig

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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