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

27 Pages Posted: 11 May 2016 Last revised: 20 Oct 2019

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

Queen's University Belfast; Queen's University Belfast - Queen's Management School

James Waterworth

Queen's University Belfast, Students

Date Written: October 10, 2019

Abstract

This paper investigates if changes in network connectedness of European sovereign bond markets from 2005 to 2011 was an indicator of the subsequent financial crisis. The unified methodology proposed by Diebold and Yilmaz (2014) is used to overcome weaknesses in alternative methodologies to measure connectedness. Our analysis shows that European sovereign bond market connectedness deteriorated with the onset of the global financial crisis that 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 total connectedness measure was much more volatile than the Pesaran-Shin approach and suggests that the Lanne-Nyberg variance decomposition was a leading indicator of instability from early 2008 to July 2008.

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

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

James Waterworth

Queen's University Belfast, Students ( email )

25 University Square
Belfast
Ireland

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