Sovereign credit risk contagion in emerging markets

• Laura Ballester ^[1] ; David Adrián García ^[1] ; Ana González-Urteaga ^[2]
  1. [1] Universitat de València

     Universitat de València

     Valencia, España

     
  2. [2] Universidad Pública de Navarra

     Universidad Pública de Navarra

     Pamplona, España

     
• Localización: Documentos de Trabajo. Seminario Permanente de Ciencias Sociales, ISSN-e 1988-1118, Nº. 11, 2016
• Idioma: inglés
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• Resumen

  • We document a framework for the analyses of contagion among sovereign credit risk markets concretely through sovereign CDS spreads of different emerging economies and regions during a period of prolonged financial distress. Following a Generalized VAR (GVAR) approach, we firstly observe a significant amount of commonality in emerging CDS portfolios over time that can be seen as previous signals of contagion. Secondly, we found a high degree of relationship between the events originated in the advanced economies and the total contagion in the CDS emerging markets. Third, we found a high degree of credit risk transfer among emerging economies, differentiating between transmitting and receiving risk portfolios. BRIC and CIVEST portfolios are net transmitters of credit risk to all others emerging portfolios during all the sample period. By contrast, Asian, Middle East Asian and African portfolios are mostly credit risk receivers from all other portfolios and Eastern European and American emerging portfolios are transmitters and receivers of contagion depending on the evolution over time. Finally, there is enough evidence of credit risk contagion to support the importance of this study.