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International risk spillover in the sovereign credit markets: An empirical analysis

Author

Listed:
  • Saker Sabkha

    () (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Christian de Peretti

    () (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Dorra Hmaied

    () (IHEC - Institut des Hautes Etudes Commerciales [Carthage] - Université de Carthage - University of Carthage)

Abstract

The occurrence of more and more financial crises characterized not only by their persistence but especially by their severity and magnitude encourages further investigation on portfolio diversification and financial assets' comovements. This paper studies the volatility spillover among 33 worldwide Sovereign Credit Default Swap markets and their underlying bond markets. Conversely to the studies of the literature, heteroscedasticity, asymmetric leverage effect and long-memory features of sovereign credit spreads are simultaneously taken into account through a bivariate FIEGARCH model and a Bayesian cointegrated VAR model. Similarly to the literature, our findings confirm strong evidences of credit risk spillover between credit markets accentuated during crisis periods. However, our country by country analysis allows us to show that countries exhibit different sensitivity levels and reactions' divergences to financial shocks. Further, we show that the bidirectional interrelationship evolves over time and across countries emphasizing the necessity of time-varying national regulatory policies and trading positions.

Suggested Citation

  • Saker Sabkha & Christian de Peretti & Dorra Hmaied, 2017. "International risk spillover in the sovereign credit markets: An empirical analysis," Working Papers hal-01652526, HAL.
  • Handle: RePEc:hal:wpaper:hal-01652526
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01652526
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    References listed on IDEAS

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