Dynamic correlations and spillover effects between CoCo bonds and other financial assets: Evidence from European banking

Fangfang Li and Ping Li

Finance Research Letters, 2021, vol. 38, issue C

Abstract: This paper examines the relationship between European contingent convertible (CoCo) bond, stock and bond issued by banks using daily data. We analyze the dynamic correlation by DCC-GARCH method, and the results indicate that the hybrid security CoCo bonds have a closer relationship with bank stocks than bonds. When systemically important banks expose to bankruptcy threat, there will be an increase in the correlations of the three markets. By the BEKK method, we analyze the spillover effects between these three markets and find that the spillover effects change over time and the CoCo bond market becomes more and more mature.

Keywords: CoCo bonds; Correlation; Spillover; DCC-GARCH; VAR-BEKK-GARCH (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s154461231931030x

DOI: 10.1016/j.frl.2020.101486

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