Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129367
Authors: 
Bostancı, Görkem
Yılmaz, Kamil
Year of Publication: 
2015
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1515
Abstract: 
We apply the Diebold-Yilmaz connectedness index methodology on sovereign credit default swaps (SCDSs) to estimate the network structure of global sovereign credit risk. In particular, using the elastic net estimation method, we separately estimate networks of daily SCDS returns and volatilities for 38 countries between 2009 and 2014. Our results reveal striking differences be- tween the network structures of returns and volatilities. In SCDS return networks, developing and developed countries stand apart in two big clusters. In the case of the SCDS volatility networks, however, we observe regional clusters among emerging market countries along with the developed-country cluster. We also show that global factors are more important than domestic factors in the determination of SCDS returns and volatilities. Finally, emerging market countries are the key generators of connectedness of sovereign credit risk shocks while severely problematic countries as well as developed countries play relatively smaller roles.
Subjects: 
Sovereign Credit Default Swaps
Sovereign Credit Risk
Systemic risk
Connect-edness
Network Estimation
Lasso
Elastic Net
Vector Autoregression
Variance Decomposition
JEL: 
F34
G15
C32
G22
F36
Document Type: 
Working Paper

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