Cross correlations in European government bonds and EuroStoxx

Jan Jurczyk and Alexander Eckrot

Papers from arXiv.org

Abstract: We use principle component analysis (PCA) of cross correlations in European government bonds and European stocks to investigate the systemic risk contained in the European economy. We tackle the task to visualize the evolution of risk, introducing the conditional average rolling sum (CARS). Using this tool we see that the risk of government bonds and stocks had an independent movement. But in the course of the European sovereign debt crisis the coupling between bonds and stocks has strongly ncreased. This results in an in-phase oscillation of risk for both markets since mid 2010. In our data, we observe a steep amplitude increase, suggesting a high vulnerability of the two coupled systems.

Date: 2015-02, Revised 2015-07
New Economics Papers: this item is included in nep-eec, nep-mfd and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1502.07367

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