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

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

Working papers from Red Investigadores de Economía

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: C58 G15 G17 (search for similar items in EconPapers)
Pages: 27
Date: 2023-05
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repositorio.banrep.gov.co/bitstream/handle ... 34/10620/be_1231.pdf (application/pdf)

Related works:
Working Paper: The Global Financial Cycle and Country Risk in Emerging Markets During Stress Episodes: A Copula-CoVaR Approach (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rie:riecdt:105

Access Statistics for this paper

More papers in Working papers from Red Investigadores de Economía Cra 7 # 14-78. Contact information at EDIRC.
Bibliographic data for series maintained by CAIE (caie-investiga@banrep.gov.co).