Was a Deterioration in ‘Connectedness’ a Leading Indicator of the European Sovereign Debt Crisis?

35 Pages Posted: 11 May 2016 Last revised: 4 Jan 2021

See all articles by Philip Anthony Hamill

Philip Anthony Hamill

Ulster University at Jordanstown

Youwei Li

Hull University Business School

Athanasios A. Pantelous

Monash University - Department of Econometrics & Business Statistics

Samuel Vigne

Trinity College (Dublin) - Trinity Business School

James Waterworth

Queen's University Belfast, Students

Date Written: October 10, 2019

Abstract

This paper investigates network connectedness of European sovereign bond markets from 2005 to 2011. To overcome weaknesses in alternative methodologies to estimate network connectedness we adopt the unified methodology recommended by Diebold and Yilmaz (2014). Our analysis shows that European sovereign bond market connectedness deteriorated with the onset of the global financial crisis which was exacerbated by the European sovereign debt crisis, with some peripheral countries deteriorating into isolation by 2011. Dynamic connectedness modelling shows that the Lanne-Nyberg (2016) total connectedness measure was much more volatile than the Pesaran-Shin (1998) approach and suggests that the Lanne-Nyberg variance decomposition was a leading indicator of instability from early 2008 to July 2008, and should be used as these decomposition methods lead to different systemic risk and vulnerability rankings.

Keywords: Financial Crisis, Networks, Sovereign Bonds, Connectedness

JEL Classification: F45, G01, G15

Suggested Citation

Hamill, Philip Anthony and Li, Youwei and Pantelous, Athanasios A. and Vigne, Samuel and Waterworth, James, Was a Deterioration in ‘Connectedness’ a Leading Indicator of the European Sovereign Debt Crisis? (October 10, 2019). Available at SSRN: https://ssrn.com/abstract=2778291 or http://dx.doi.org/10.2139/ssrn.2778291

Philip Anthony Hamill

Ulster University at Jordanstown ( email )

Newtownabbey
School of Accounting
County Antrim BT37 OQB, Northern Ireland
United Kingdom
02890365131 (Phone)

Youwei Li (Contact Author)

Hull University Business School ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

Athanasios A. Pantelous

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Samuel Vigne

Trinity College (Dublin) - Trinity Business School ( email )

Aras an Phiarsaigh
College Green
Dublin, Leinster D2
Ireland

James Waterworth

Queen's University Belfast, Students ( email )

25 University Square
Belfast
Ireland

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