Eurozone network connectedness during calm and crisis: evidence from the MTS platform for interdealer trading of European sovereign debt

Youwei Li and James Waterworth

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the connectedness of the Eurozone sovereign debt market over the period 2005–2011. By employing measures built from the variance decompositions of approximating models we are able to define weighted, directed networks that enable a deeper understanding of the relationships between the Eurozone countries. We find that connectedness in the Eurozone was very high during the calm market conditions preceding the global financial crisis but decreased dramatically when the crisis took hold, and worsened as the Eurozone sovereign debt crisis emerged. The drop in connectedness was especially prevalent in the case of the peripheral countries with some of the most peripheral countries deteriorating into isolation. Our results have implications for both market participants and regulators.

Keywords: European sovereign debt; MTS; Network; Connectedness; Return; Volatility (search for similar items in EconPapers)
JEL-codes: G01 G15 H63 (search for similar items in EconPapers)
Date: 2016-05-10
New Economics Papers: this item is included in nep-eec and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:71221

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