Proceedings of The 3rd International Conference on New Trends in Management, Business and Economics
Dynamic Connectedness between European CDS Premia
In this study, the spillover dynamics of the CDS premia between four major European countries (Germany, France, Italy, and Spain) are examined through a rolling-window Vector Autoregressive (VAR) model for the period 2012-2022. A variety of connectedness measures are computed based on the generalized forecast error variance decompositions following the methodology that is introduced by Diebold and Yılmaz (2009, 2012, 2014). Results show that there are significant variations in total and pairwise connectedness levels through the sample period. These connectedness measures are then regressed against the VSTOXX index, the European reciprocal of the VIX. It is found that variations in the connectedness among the CDS premia are positively related to the Europe-wide uncertainty level.
keywords: comovement, European markets, financial instability, rolling-window VAR model, spillovers.