Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119421
Authors: 
Gätjen, Rebekka
Schienle, Melanie
Year of Publication: 
2015
Series/Report no.: 
SFB 649 Discussion Paper 2015-019
Abstract: 
We introduce a methodology for measuring default risk connectedness that is based on an out-of-sample variance decomposition of model forecast errors. The out-of-sample nature of the procedure leads to "realized" measures which, in practice, respond more quickly to crisis occurrences than those based on in-sample methods. The resulting relative and absolute connectedness measures find distinct and complementary information from CDS and bond yield data on European area sovereign risk. The detection and use of these second moment di erences of CDS and bond data is new to the literature and allows to identify countries that impose risk on the system from those which sustain risk.
Subjects: 
sovereign risk measurement
variance decomposition
connectedness
CDS and bond spreads
financial and eurozone crisis
JEL: 
C32
C58
F34
G01
G18
Document Type: 
Working Paper

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