EconPapers    
Economics at your fingertips  
 

Anatomy of a Sovereign Debt Crisis: CDS Spreads and Real-Time Macroeconomic Data

Lucia Alessi (), Pierluigi Balduzzi () and Roberto Savona ()
Additional contact information
Lucia Alessi: European Commission – JRC, https://ec.europa.eu/jrc/en
Pierluigi Balduzzi: Boston College

No 2019-03, Working Papers from Joint Research Centre, European Commission (Ispra site)

Abstract: We construct a unique and comprehensive data set of 19 real-time daily macroeconomic indicators for 11 Eurozone countries, for the 5/11/2009{4/25/2013 period. We use this new data set to characterize the time-varying dependence of the cross-section of sovereign credit default swap (CDS) spreads on country-specific macro indicators. We employ daily Fama-MacBeth type cross-sectional regressions to produce time-series of macro-sensitivities, which are then used to identify risk regimes and forecast future equity market volatility. We document pronounced time-variation in the macro-sensitivities, consistent with the notion that market participants focused on very different macro indicators at the different times of the crisis. Second, we identify three distinct crisis risk regimes, based on the general level of CDS spreads, the macro-sensitivities, and the GIPSI connotation. Third, we document the predictive power of the macro-sensitivities for future option-implied equity market volatility, consistent with the notion that expected future risk aversion is an important driver of how CDS spreads impound macro information.

Keywords: Sovereign crises; Real-time data (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec and nep-opm
Date: 2019-02
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published by Publications office of the European Union, 2019

Downloads: (external link)
http://publications.jrc.ec.europa.eu/repository/bi ... vona_2019_jrc_wp.pdf

Related works:
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:jrs:wpaper:201903

Access Statistics for this paper

More papers in Working Papers from Joint Research Centre, European Commission (Ispra site) Contact information at EDIRC.
Bibliographic data for series maintained by Peter Benczur ().

 
Page updated 2019-11-12
Handle: RePEc:jrs:wpaper:201903