Sovereign CDS Spread Determinants and Spill-Over Effects During Financial Crisis: A Panel VAR Approach

42 Pages Posted: 25 Jan 2016

See all articles by Emilios C. Galariotis

Emilios C. Galariotis

Audencia Business School ; Audencia Nantes School of Management

Panagiota Makrychoriti

Birkbeck ,University of London

Spyros I. Spyrou

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: June 15, 2015

Abstract

This paper examines the determinants of CDS spreads and potential spillover effects for Eurozone countries during the recent financial crisis in the EU. We employ a Panel Vector Autoregressive (PVAR) model which combines the advantages of traditional VAR modelling with the advantages of a panel-data approach. In addition to variables that proxy for global and financial market spread determinants we also employ variables that proxy for behavioral determinants. We find that the determinants of CDS variance are neither uniform nor stable during different periods and different countries. For instance, as we move from 2008 to 2014 the impact of the slope of the term structure on CDS spread variance is increasing for Spain, Portugal, Italy, Greece, Ireland, and decreasing for Germany, France, Netherlands, Belgium and Austria. Other findings indicate that investor sentiment may be an important CDS spread determinant during the period between 2008 and 2010, along with other factors, while spillover effects may run from Spain and Italy to core countries while spillover effects from Portugal, Greece, and Ireland are of minor importance.

Keywords: Financial Crisis, CDS, Spreads, Panel VAR, Sentiment

JEL Classification: G12, G14, G15

Suggested Citation

Galariotis, Emilios C. and Makrychoriti, Panagiota and Spyrou, Spyros I., Sovereign CDS Spread Determinants and Spill-Over Effects During Financial Crisis: A Panel VAR Approach (June 15, 2015). Available at SSRN: https://ssrn.com/abstract=2720414 or http://dx.doi.org/10.2139/ssrn.2720414

Emilios C. Galariotis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Audencia Nantes School of Management ( email )

France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Panagiota Makrychoriti

Birkbeck ,University of London ( email )

WC1E 7HX
London, Malet St,
United Kingdom

Spyros I. Spyrou (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
352
Abstract Views
998
rank
107,624
PlumX Metrics