Sovereign bond market spillovers from crisis-time developments in Greece

Daragh Clancy, Carmine Gabriele and Diana Zigraiova

Working Papers from European Stability Mechanism

Abstract: The systemic importance of a country is a crucial component in the European Stability Mechanism's assessment of financial assistance requests. However, disentangling the effect of developments in one country on other countries in real time is fraught with difficulties. Using empirical methods that provide ex-ante measures of risk exposure, we find that changes in the tail risks of Greek sovereign bond returns resulted in immediate and significant cross-market spillovers to other euro area sovereign bond returns. Our approach provides real-time insights on evolving cross-market interdependencies, such as Germany gradually becoming a safe haven from Greece. We confirm that developments in Greece drive our tail-risk results by linking them to a newly developed intra-day event database. This approach also allows us to provide a more intuitive quantification of the spillovers emanating from Greece. Taken together, our findings demonstrate that developments in Greece significantly affected other euro area sovereign bond markets over and beyond global, euro area and country-specific factors. Our results provide evidence for the systemic importance of Greece throughout the European sovereign debt crisis.

Keywords: crisis; events; narrative; sovereign bonds; spillovers; tail risks (search for similar items in EconPapers)
JEL-codes: C22 F36 G01 G15 (search for similar items in EconPapers)
Pages: 74
Date: 2020-06-11
New Economics Papers: this item is included in nep-ban, nep-eec and nep-ore
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Journal Article: Sovereign bond market spillovers from crisis-time developments in Greece (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:stm:wpaper:45

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