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Trends of the Contagion Risk in Sovereign Spreads for Emerging European Countries

Author

Listed:
  • Dedu, Vasile

    (Academy of Economic Studies, Bucharest)

  • Mihai, Irina

    (National Bank of Romania)

  • Neagu, Florian

    (National Bank of Romania)

Abstract

We investigate the sovereign spreads behavior of the European emerging countries using the clustering technique. Our main finding is that the distances between spreads during high volatile times is significantly lower than in normal periods, that is, the correlation is much higher. Secondly, the market sentiment explains a much higher percentage of the spreads movements during turbulent times. Thirdly, the link between spreads and macroeconomic fundamentals seems to be blurred compared with the expectations from the economic theory.

Suggested Citation

  • Dedu, Vasile & Mihai, Irina & Neagu, Florian, 2010. "Trends of the Contagion Risk in Sovereign Spreads for Emerging European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 265-279, July.
    • Handle: RePEc:rjr:romjef:v::y:2010:i:2:p:265-279
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    References listed on IDEAS

    as
    1. Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," The World Bank Economic Review, World Bank, vol. 16(2), pages 171-195, August.
    2. Powell, Andrew & Martínez, Juan Francisco, 2008. "On Emerging Economy Sovereign Spreads and Ratings," IDB Publications (Working Papers) 1611, Inter-American Development Bank.
    3. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
    4. Patrick McGuire & Martijn A Schrijvers, 2003. "Common factors in emerging market spreads," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. Eugen Scarlat, 2016. "Connectivity - Based Clustering of GDP Time Series," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 23-38, March.

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    More about this item

    Keywords

    contagion spreads; emerging markets; clustering;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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