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

  • Dedu, Vasile

    ()

    (Academy of Economic Studies, Bucharest)

  • Mihai, Irina

    ()

    (National Bank of Romania)

  • Neagu, Florian

    ()

    (National Bank of Romania)

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.

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Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2010)
Issue (Month): 2 (July)
Pages: 265-279

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Handle: RePEc:rjr:romjef:v::y:2010:i:2:p:265-279
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  1. Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," World Bank Economic Review, World Bank Group, vol. 16(2), pages 171-195, August.
  2. Andrew Powell & Juan F. Martinez S., 2008. "On Emerging Economy Sovereign Spreads and Ratings," Research Department Publications 4565, Inter-American Development Bank, Research Department.
  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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