Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Empirical Finance No. G05-V2
Using variance decompositions in vector auto-regressions (VARs) we model a high-dimensional network of European CDS spreads to assess the transmission of credit risk to the non-financial corporate sector. Our findings suggest a sectoral clustering in the CDS network, where financial institutions are located in the center and non-financial as well as sovereign CDS are grouped around the financial center. The network has a geographical component reflected in differences in the magnitude and direction of real-sector risk transmission across European countries. While risk transmission to the non-financial sector increases during crisis events, risk transmission within the non-financial sector remains largely unchanged.