Dynamic Correlations of Sovereign Bond Yield Spreads in the Euro zone and the Role of Credit Rating Agencies' Downgrades

Antonakakis, Nikolaos

Dynamic Correlations of Sovereign Bond Yield Spreads in the Euro zone and the Role of Credit Rating Agencies' Downgrades

MPRA Paper from University Library of Munich, Germany

Abstract: The European debt crisis that followed the global financial crisis, erupting first with Greece, then Ireland, Portugal, Italy and Spain, has threatened the very existence of the Euro zone. In this paper we examine the evolution of dynamic co-movements of sovereign bond yield spreads (BYS) in the Euro zone and the role of credit rating agency downgrades on those co-movements. Estimation results from a multivariate DCC-GARCH model on daily BYS data for nine Euro zone countries over the period 2007-2012 suggest an inverted U-shaped curve of BYS co-movements during the period of the financial and debt crisis. Credit rating downgrades by major rating agencies indicate rather idiosyncratic patterns of government bond yield spreads co-movements within and between the Euro zone periphery and the core.

Keywords: Government bond yield spreads; credit rating agencies; dynamic conditional correlations; Euro zone sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: C32 E43 G12 G24 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-eec and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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