European Sovereign Systemic Risk Zones

87 Pages Posted: 16 Mar 2016

See all articles by Veni Arakelian

Veni Arakelian

Council of Economic Advisors, Ministry of Finance, Hellenic Republic; UCL Centre for Blockchain Technologies

Petros Dellaportas

Athens University of Economics and Business

Roberto Savona

University of Brescia - Department of Economics and Management

Marika Vezzoli

University of Brescia

Date Written: March 16, 2016

Abstract

This paper proposes a novel framework identifying sovereign systemic risk zones. We first explore the cross-dynamics of sovereign CDS in terms of time-changing contagion measures based on copulas and then assemble these measures together with country-specific fundamentals through recursive partitioning, thereby producing important leading indicators and identification of main sovereign systemic risk regimes expressed as regions in CDS spreads. Using data for Greece, Ireland, Italy, Portugal, Spain, France, Germany over the period 2008-2013, we identify three main systemic risk zones (safe, risky, high risky) also assigning specific risk thresholds to the selected leading indicators (unemployment rate, Debt/GDP, inflation, GDP growth, copula-based CDS dependencies).

Keywords: Credit default swaps, systemic risk, contagion, copula, regression trees

JEL Classification: G12, G01

Suggested Citation

Arakelian, Veni and Dellaportas, Petros and Savona, Roberto and Vezzoli, Marika, European Sovereign Systemic Risk Zones (March 16, 2016). Available at SSRN: https://ssrn.com/abstract=2748481 or http://dx.doi.org/10.2139/ssrn.2748481

Veni Arakelian

Council of Economic Advisors, Ministry of Finance, Hellenic Republic ( email )

5-7 Nikis str
Athens, 10180
Greece

UCL Centre for Blockchain Technologies ( email )

Malet Place
London, London WC1E 6BT
United Kingdom

Petros Dellaportas

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Roberto Savona (Contact Author)

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara, 50
BRESCIA, BS 25122
Italy

Marika Vezzoli

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

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