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Was a deterioration in ‘connectedness’ a leading indicator of the European sovereign debt crisis?

Hamill, Philip A.; Li, Youwei; Pantelous, Athanasios; Vigne, Samuel A.; Waterworth, James

Authors

Philip A. Hamill

Athanasios Pantelous

Samuel A. Vigne

James Waterworth



Abstract

This paper investigates network connectedness of European sovereign bond markets from 2005 to 2011. To overcome weaknesses in alternative methodologies to estimate network connectedness we adopt the unified methodology recommended by Diebold and Yilmaz (2014). Our analysis shows that European sovereign bond market connectedness deteriorated with the onset of the global financial crisis which was exacerbated by the European sovereign debt crisis, with some peripheral countries deteriorating into isolation by 2011. Dynamic connectedness modelling shows that the Lanne-Nyberg (2016) total connectedness measure was much more volatile than the Pesaran-Shin (1998) approach and suggests that the Lanne-Nyberg variance decomposition was a leading indicator of instability from early 2008 to July 2008, and should be used as these decomposition methods lead to different systemic risk and vulnerability rankings.

Citation

Hamill, P. A., Li, Y., Pantelous, A., Vigne, S. A., & Waterworth, J. (2021). Was a deterioration in ‘connectedness’ a leading indicator of the European sovereign debt crisis?. Journal of International Financial Markets, Institutions and Money, https://doi.org/10.1016/j.intfin.2021.101300

Journal Article Type Article
Acceptance Date Jan 24, 2021
Online Publication Date Feb 2, 2021
Publication Date 2021-02
Deposit Date Feb 3, 2021
Publicly Available Date Feb 3, 2022
Journal Journal of International Financial Markets, Institutions and Money
Print ISSN 1042-4431
Publisher Elsevier
Peer Reviewed Peer Reviewed
Article Number 101300
DOI https://doi.org/10.1016/j.intfin.2021.101300
Keywords Financial crisis; Networks; Sovereign bonds; Connectedness
Public URL https://hull-repository.worktribe.com/output/3709781

Files

This file is under embargo until Feb 3, 2022 due to copyright reasons.

Contact Youwei.Li@hull.ac.uk to request a copy for personal use.




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