This article focuses on the tail risk spillover (co-movement) effect between the sovereign and banking sector in the eurozone, using a novel multivariate quantile model (VAR for VaR method) and then the relative pseudo quantile impulse response functions. We analysed the causality risk transmission at different quantiles (up/downside), using daily credit default swap from 9 October 2008 to 29 May 2018. Our main findings confirm the two-way causality between these credit markets, highlight the presence of an asymmetry in the mechanisms of shock transmissions between core and no core bank/sovereign, respectively. Also, we measure the directional predictability in the quantiles using the cross-quantilogram approach. The results suggest that a high credit risk sovereign predicts high sovereign risk (and vice versa).

The diabolical sovereigns/banks risk loop: A VAR quantile design

Foglia M.
Primo
;
Angelini E.
Secondo
2020-01-01

Abstract

This article focuses on the tail risk spillover (co-movement) effect between the sovereign and banking sector in the eurozone, using a novel multivariate quantile model (VAR for VaR method) and then the relative pseudo quantile impulse response functions. We analysed the causality risk transmission at different quantiles (up/downside), using daily credit default swap from 9 October 2008 to 29 May 2018. Our main findings confirm the two-way causality between these credit markets, highlight the presence of an asymmetry in the mechanisms of shock transmissions between core and no core bank/sovereign, respectively. Also, we measure the directional predictability in the quantiles using the cross-quantilogram approach. The results suggest that a high credit risk sovereign predicts high sovereign risk (and vice versa).
File in questo prodotto:
File Dimensione Formato  
Foglia and Angelini (2020).pdf

Solo gestori archivio

Tipologia: PDF editoriale
Dimensione 2.94 MB
Formato Adobe PDF
2.94 MB Adobe PDF   Visualizza/Apri   Richiedi una copia
manuscript_JEA.pdf

accesso aperto

Tipologia: Documento in Pre-print
Dimensione 1.28 MB
Formato Adobe PDF
1.28 MB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11564/723872
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 10
  • ???jsp.display-item.citation.isi??? ND
social impact