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Conditional dependence of US and EU sovereign CDS: A time-varying copula-based estimation

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  • Atil, Ahmed
  • Bradford, Marc
  • Elmarzougui, Abdelaziz
  • Lahiani, Amine

Abstract

In this paper, we perform an estimation based on the copula-GARCH model to assess the dependence structure of sovereign Credit Default Swaps (CDS) spreads between European countries and the United States. Using a daily data of CDS spreads covering the period from January 2007 to March 2016, we detect non-linear dependence structure of CDS spreads between the US and European countries. Our results indicate that sovereign CDS of those European countries with financial markets comparable to the US including the UK and those countries that showed a relative resilience to the euro area debt crisis including Germany have had higher conditional dependence with the US.

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  • Atil, Ahmed & Bradford, Marc & Elmarzougui, Abdelaziz & Lahiani, Amine, 2016. "Conditional dependence of US and EU sovereign CDS: A time-varying copula-based estimation," Finance Research Letters, Elsevier, vol. 19(C), pages 42-53.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:42-53
    DOI: 10.1016/j.frl.2016.06.001
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    8. Krupskii, Pavel & Joe, Harry, 2020. "Flexible copula models with dynamic dependence and application to financial data," Econometrics and Statistics, Elsevier, vol. 16(C), pages 148-167.

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    More about this item

    Keywords

    Sovereign CDS spreads; European debt crisis; Time-varying copulas;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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