IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

A market-based approach to sector risk determinants and transmission in the euro area

  • Saldías, Martín

In a panel data framework applied to Portfolio Distance-to-Default series of corporate sectors in the euro area, this paper evaluates systemic and idiosyncratic determinants of default risk and examines how distress is transferred in and between the financial and corporate sectors since the early days of the euro. This approach takes into account observed and unobserved common factors and the presence of different degrees of cross-section dependence in the form of economic proximity. This paper contributes to the financial stability literature with a contingent claims approach to a sector-based analysis with a less dominant macro focus while being compatible with existing stress-testing methodologies in the literature. A disaggregated analysis of the different corporate and financial sectors allows for a more detailed assessment of specificities in terms of risk profile, i.e. heterogeneity of business models, risk exposures and interaction with the rest of the macro environment.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0378426613000514
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 4534-4555

as
in new window

Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4534-4555
DOI: 10.1016/j.jbankfin.2013.01.026
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Veldkamp, Laura & Wolfers, Justin, 2006. "Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement," CEPR Discussion Papers 5898, C.E.P.R. Discussion Papers.
  2. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
  3. Kerstin Bernoth & Andreas Pick, 2009. "Forecasting the fragility of the banking and insurance sector," DNB Working Papers 202, Netherlands Central Bank, Research Department.
  4. John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2005. "In Searach of Distress Risk," Harvard Institute of Economic Research Working Papers 2081, Harvard - Institute of Economic Research.
  5. Carling, Kenneth & Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2007. "Corporate credit risk modeling and the macroeconomy," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 845-868, March.
  6. Charitou, Andreas & Lambertides, Neophytos & Theodoulou, Giorgos, 2011. "Dividend Increases and Initiations and Default Risk in Equity Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(05), pages 1521-1543, November.
  7. Sean Holly & M. Hashem Pesaran & Takashi Yamagata, 2006. "A Spatio-Temporal Model of House Prices in the US," CESifo Working Paper Series 1826, CESifo Group Munich.
  8. Cappiello, Lorenzo & Kadareja, Arjan & Manganelli, Simone, 2010. "The Impact of the Euro on Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(02), pages 473-502, April.
  9. Hanson, Samuel G. & Pesaran, M. Hashem & Schuermann, Til, 2008. "Firm heterogeneity and credit risk diversification," Journal of Empirical Finance, Elsevier, vol. 15(4), pages 583-612, September.
  10. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
  11. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  12. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
  13. Kavonius, Ilja Kristian & Castrén, Olli, 2009. "Balance Sheet Interlinkages and Macro-Financial Risk Analysis in the Euro Area," Working Paper Series 1124, European Central Bank.
  14. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
  15. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
  16. Catherine Bruneau & Olivier De Bandt & W. Elamri, 2012. "Macroeconomic Fluctuations and Corporate financial Fragility," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00666757, HAL.
  17. Francis Teal & Markus Eberhardt, 2010. "Productivity Analysis in Global Manufacturing Production," Economics Series Working Papers 515, University of Oxford, Department of Economics.
  18. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
  19. Maria Vassalou & Yuhang Xing, 2004. "Default Risk in Equity Returns," Journal of Finance, American Finance Association, vol. 59(2), pages 831-868, 04.
  20. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07.
  21. Reint Gropp & Jukka M. Vesala & Giuseppe Vulpes, 2002. "Equity and bond market signals as leading indicators of bank fragility," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  22. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2009. "Cross-Border Bank Contagion in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 97-139, March.
  23. Mark A. Carlson & Thomas B. King & Kurt F. Lewis, 2009. "Distress in the financial sector and economic activity," Finance and Economics Discussion Series 2009-01, Board of Governors of the Federal Reserve System (U.S.).
  24. Baltagi B-H & Bresson G. & Pirotte A., 2005. "Panel Unit Root Tests and Spatial Dependence," Working Papers ERMES 0503, ERMES, University Paris 2.
  25. Alexander Chudik & M. Hashem Pesaran & Elisa Tosetti, 2011. "Weak and strong cross‐section dependence and estimation of large panels," Econometrics Journal, Royal Economic Society, vol. 14, pages C45-C90, 02.
  26. repec:hal:journl:peer-00796743 is not listed on IDEAS
  27. Holly, Sean & Hashem Pesaran, M. & Yamagata, Takashi, 2011. "The spatial and temporal diffusion of house prices in the UK," Journal of Urban Economics, Elsevier, vol. 69(1), pages 2-23, January.
  28. Sanjiv Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2006. "Common Failings: How Corporate Defaults are Correlated," NBER Working Papers 11961, National Bureau of Economic Research, Inc.
  29. Sean Holly & M. Hashem Pesaran & Takashi Yamagata, 2010. "Spatial and Temporal Diffusion of House Prices in the UK," CESifo Working Paper Series 2913, CESifo Group Munich.
  30. Sean HOLLY & Ivan PETRELLA, 2010. "Factor demand linkages, technology shocks and the business cycle," Working Papers Department of Economics ces10.26, KU Leuven, Faculty of Economics and Business, Department of Economics.
  31. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA).
  32. Eberhardt, Markus & Bond, Stephen, 2009. "Cross-section dependence in nonstationary panel models: a novel estimator," MPRA Paper 17692, University Library of Munich, Germany.
  33. Gianni De Nicolo & Alexander F. Tieman, 2006. "Economic Integration and Financial Stability; A European Perspective," IMF Working Papers 06/296, International Monetary Fund.
  34. De Graeve, F. & Kick, T. & Koetter, M., 2008. "Monetary policy and financial (in)stability: An integrated micro-macro approach," Journal of Financial Stability, Elsevier, vol. 4(3), pages 205-231, September.
  35. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  36. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  37. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-24, January.
  38. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  39. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
  40. Nicolas Véron, 2006. "Farewell national champions," Policy Briefs 39, Bruegel.
  41. Robert A. Jarrow, 2001. "Counterparty Risk and the Pricing of Defaultable Securities," Journal of Finance, American Finance Association, vol. 56(5), pages 1765-1799, October.
  42. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
  43. Michael Pomerleano, 2007. "Corporate financial restructuring in Asia: implications for financial stability," BIS Quarterly Review, Bank for International Settlements, September.
  44. Reint Gropp & Jukka M. Vesala & Giuseppe Vulpes, 2004. "Market indicators, bank fragility, and indirect market discipline," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 53-62.
  45. Raddatz, Claudio, 2008. "Credit chains and sectoral comovemen t: does the use of trade credit amplify sectoral shocks ?," Policy Research Working Paper Series 4525, The World Bank.
  46. Ivan Alves, 2005. "Sectoral fragility: factors and dynamics," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 450-80 Bank for International Settlements.
  47. Conley, T.G. & Topa, G., 1999. "Socio-Economic Distance and Spatial Patterns in Unemployment," Working Papers 99-04, C.V. Starr Center for Applied Economics, New York University.
  48. Castrén, Olli & Fitzpatrick, Trevor & Sydow, Matthias, 2009. "Assessing portfolio credit risk changes in a sample of EU large and complex banking groups in reaction to macroeconomic shocks," Working Paper Series 1002, European Central Bank.
  49. Castrén, Olli & Dées, Stéphane & Zaher, Fadi, 2010. "Stress-testing euro area corporate default probabilities using a global macroeconomic model," Journal of Financial Stability, Elsevier, vol. 6(2), pages 64-78, June.
  50. Zhou, Chunsheng, 2001. "An Analysis of Default Correlations and Multiple Defaults," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 555-76.
  51. Efraim Benmelech & Nittai K. Bergman, 2011. "Bankruptcy and the Collateral Channel," Journal of Finance, American Finance Association, vol. 66(2), pages 337-378, 04.
  52. Timothy G. Conley & Bill Dupor, 2003. "A Spatial Analysis of Sectoral Complementarity," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 311-352, April.
  53. Per Asberg Sommar & Hovick Shahnazarian, 2009. "Interdependencies between Expected Default Frequency and the Macro Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 83-110, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4534-4555. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.