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Dependence between Stock Returns of Italian Banks and the Sovereign Risk

Fabrizio Durante, Enrico Foscolo () and Alex Weissensteiner ()
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Enrico Foscolo: Faculty of Economics and Management, Free University of Bozen-Bolzano, 39100 Bozen-Bolzano, Italy
Alex Weissensteiner: Faculty of Economics and Management, Free University of Bozen-Bolzano, 39100 Bozen-Bolzano, Italy

Econometrics, 2017, vol. 5, issue 2, 1-14

Abstract: We analyze the interdependence between the government yield spread and stock returns of the banking sector in Italy during the years 2003–2015. In a first step, we find that the Spearman’s rank correlation between the yield spread and the Italian banking system changed significantly after September 2008. According to this finding, we split the time window in two sub-periods. While we show that the dependence between the banking industry and changes in the yield spread increased significantly in the second time interval, we find no contagion effects from changes in the yield spread to returns of the banking system.

Keywords: financial markets; rank correlation; tail dependence; sovereign credit risk; Italy (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2017
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