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Conditional Return Asymmetries in the Sovereign-Bank Nexus

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Abstract

We estimate the time-varying skewness of European banks' stock and sovereign bond returns using quantile methods. We obtain a negative relationship between sovereigns' and banks' return asymmetries, which we relate to the safe haven features of sovereign debt. However, this feature reverses for peripheral European countries (GIIPS). Furthermore, although better capitalized and less risky banks tend to offer less negatively skewed stock returns, these benefits do not reach similarly strong GIIPS-headquartered banks. Finally, we identify a risk premium related to sovereign negative skewness for both large financial and non-financial European firms, which is stronger for firms headquartered in GIIPS.

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  • Julio Gálvez & Javier Mencía, 2018. "Conditional Return Asymmetries in the Sovereign-Bank Nexus," Working Papers wp2018_1813, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp2018_1813
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    3. White, Halbert & Kim, Tae-Hwan & Manganelli, Simone, 2015. "VAR for VaR: Measuring tail dependence using multivariate regression quantiles," Journal of Econometrics, Elsevier, vol. 187(1), pages 169-188.
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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