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A vine-copula conditional value-at-risk approach to systemic sovereign debt risk for the financial sector

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  • Reboredo, Juan C.
  • Ugolini, Andrea

Abstract

We investigated systemic sovereign debt distress affecting European financial systems and the systemic risk implications for its European partners of a potential Greek debt default before and after the onset of the financial and debt crises, using the conditional value-at-risk (CoVaR) measure, characterized and computed using copulas and vine copulas. Before the debt crisis, sovereign debt was found to imply positive systemic risk for domestic financial systems across Europe. However, with the onset of the Greek crisis, the systemic impact of sovereign debt increased for countries like Greece, Italy and Portugal, while remaining stable or reduced for other countries. Regarding the systemic impact of sovereign Greek debt distress, our evidence indicates that negative impacts were limited to a small set of countries, notably Belgium, Italy, the Netherlands and Portugal.

Suggested Citation

  • Reboredo, Juan C. & Ugolini, Andrea, 2015. "A vine-copula conditional value-at-risk approach to systemic sovereign debt risk for the financial sector," The North American Journal of Economics and Finance, Elsevier, vol. 32(C), pages 98-123.
  • Handle: RePEc:eee:ecofin:v:32:y:2015:i:c:p:98-123
    DOI: 10.1016/j.najef.2015.02.002
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    References listed on IDEAS

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    Cited by:

    1. Javier Ojea Ferreiro, 2018. " Contagion spillovers between sovereign and financial European sector from a Delta CoVaR approach," Documentos de Trabajo del ICAE 2018-12, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    2. repec:gam:jecnmx:v:5:y:2017:i:2:p:23-:d:100926 is not listed on IDEAS
    3. Jammazi, Rania & Tiwari, Aviral Kr. & Ferrer, Román & Moya, Pablo, 2015. "Time-varying dependence between stock and government bond returns: International evidence with dynamic copulas," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 74-93.
    4. Kjersti Aas, 2016. "Pair-Copula Constructions for Financial Applications: A Review," Econometrics, MDPI, Open Access Journal, vol. 4(4), pages 1-15, October.
    5. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.
    6. Reboredo, Juan C. & Ugolini, Andrea, 2015. "Downside/upside price spillovers between precious metals: A vine copula approach," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 84-102.

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