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Score-Driven Systemic Risk Signaling for European Sovereign Bond Yields and CDS Spreads

Rutger-Jan Lange, Andre Lucas () and Arjen Siegmann ()
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Rutger-Jan Lange: VU University Amsterdam, Erasmus University Rotterdam, the Netherlands

No 16-064/IV, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We compute joint sovereign default probabilities as coincident systemic risk indicators. Instead of commonly used CDS spreads, we use government bond yield data which provide a longer data history. We show that for the more recent sample period 2008--2015, joint default probabilities based on CDS and bond yield data yield similar results. For the period 1987-2008, only the bond yield data can be used to shed light on European sovereign systemic stress. We also show that simple averages of rolling pairwise correlations do not always yield intuitive systemic risk indicators.

Keywords: systemic risk; conditional default; credit default swaps; bond yields (search for similar items in EconPapers)
JEL-codes: G01 G17 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-rmg
Date: 2016-08-29
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Persistent link: http://EconPapers.repec.org/RePEc:tin:wpaper:20160064

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