The Global Financial Cycle and Country Risk in Emerging Markets During Stress Episodes: A Copula-CoVaR Approach

Luis Melo-Velandia, José Romero and Mahicol Stiben Ramírez-González

Borradores de Economia from Banco de la Republica de Colombia

Abstract: En este artículo, analizamos la estructura de dependencia en las colas de las distribuciones de los Credit Default Swaps (CDS) y el ciclo financiero global en un grupo de once mercados emergentes. Utilizando un modelo Copula-CoVaR, proporcionamos evidencia de la dependencia significativa en las colas de las distribuciones de variables relacionadas con el ciclo financiero global, como el VIX, y los CDS de mercados emergentes. Estos hallazgos son importantes en el contexto de mercados financieros globales estresados (cola derecha de las distribuciones del VIX), ya que ofrecen a los inversores internacionales información relevante sobre cómo rebalancear sus portafolios mediante una métrica más general que el CoVaR tradicional. Además, nuestros resultados respaldan la importancia del ciclo financiero global en la dinámica del riesgo soberano. **** RESUMEN: In this paper, we analyze the tail-dependence structure of credit default swaps (CDS) and the global financial cycle for a group of eleven emerging markets. Using a Copula-CoVaR model, we provide evidence that there is a significant taildependence between variables related with the global financial cycle, such as the VIX, and emerging market CDS. These results are particularly important in the context of distressed global financial markets (right tail of the distributions of the VIX) because they provide international investors with relevant information on how to rebalance their portfolios and a more suitable metric to analyze sovereign risk that goes beyond the traditional CoVaR. Additionally, we present further evidence supporting the importance of the global financial cycle in sovereign risk dynamics.

Keywords: Global financial cycle; Country risk; CDS; Copula-CoVaR; Ciclo financiero global; Riesgo soberano (search for similar items in EconPapers)
JEL-codes: C58 G15 G17 (search for similar items in EconPapers)
Pages: 25
Date: 2023-05
New Economics Papers: this item is included in nep-des and nep-rmg
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https://doi.org/10.32468/be.1231

Related works:
Journal Article: The Global Financial Cycle and country risk in emerging markets during stress episodes: A Copula-CoVaR approach (2025)
Working Paper: The Global Financial Cycle and Country Risk in Emerging Markets During Stress Episodes: A Copula-CoVaR Approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1231

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