Structural breaks in the interaction between bank and sovereign default risk

This research has financial support from the Spanish Ministry of Economy and Competitiveness (Grant ECO2012-32554)

Detalles Bibliográficos
Autores: Lovreta, Lidija, López Pascual, Joaquín
Tipo de recurso: artículo
Fecha de publicación:2020
País:España
Institución:Universidad Rey Juan Carlos
Repositorio:BURJC-Digital. Repositorio Institucional de la Universidad Rey Juan Carlos
OAI Identifier:oai:burjcdigital.urjc.es:10115/30577
Acceso en línea:https://hdl.handle.net/10115/30577
Access Level:acceso abierto
Palabra clave:Credit default swaps
Structural breaks
Bank-sovereign nexus
Sovereign debt crisis
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spelling Structural breaks in the interaction between bank and sovereign default riskLovreta, LidijaLópez Pascual, JoaquínCredit default swapsStructural breaksBank-sovereign nexusSovereign debt crisisThis research has financial support from the Spanish Ministry of Economy and Competitiveness (Grant ECO2012-32554)The recent financial and sovereign debt crises emphasized the interdependence between bank and sovereign default risk and showed that major shocks may lead to a self-reinforcing negative spiral. In this paper, we analyse the pattern of interaction between bank and sovereign default risk by endogenously estimating the timing of structural breaks. The endogenous approach avoids the problem of choosing the number and the location of important turning points associated with the exogenous selection of break dates, commonly applied in the literature. In addition, it provides additional insight to which (if any) of the many exogenously proposed breaks are of particular importance to one specific economy, which can help policy makers to structure their actions accordingly. Using Spain during the 2008–2012 period as an illustrative example, we find supporting evidence for the three distinctive phases, marked by the breaks in the early-January and mid-May 2010. The three phases are characterized with an evident change in the bank–sovereign interaction, and we detect a bi-directional relationship only during the interim phase, i.e. at the very peak of the European sovereign debt crisis. We show that endogenously identified turning points coincide with important public events that affect investors’ perception about the government’s capacity and willingness to repay debt and support distressed banks. Finally, we provide evidence that structural dependence in the system extends to the interaction between bank and sovereign default risk volatility.Springer Open202420242020info:eu-repo/semantics/articleapplication/pdfhttps://hdl.handle.net/10115/30577reponame:BURJC-Digital. Repositorio Institucional de la Universidad Rey Juan Carlosinstname:Universidad Rey Juan CarlosInglésAtribución 4.0 Internacionalhttp://creativecommons.org/licenses/by/4.0/info:eu-repo/semantics/openAccessoai:burjcdigital.urjc.es:10115/305772026-06-24T12:48:17Z
dc.title.none.fl_str_mv Structural breaks in the interaction between bank and sovereign default risk
title Structural breaks in the interaction between bank and sovereign default risk
spellingShingle Structural breaks in the interaction between bank and sovereign default risk
Lovreta, Lidija
Credit default swaps
Structural breaks
Bank-sovereign nexus
Sovereign debt crisis
title_short Structural breaks in the interaction between bank and sovereign default risk
title_full Structural breaks in the interaction between bank and sovereign default risk
title_fullStr Structural breaks in the interaction between bank and sovereign default risk
title_full_unstemmed Structural breaks in the interaction between bank and sovereign default risk
title_sort Structural breaks in the interaction between bank and sovereign default risk
dc.creator.none.fl_str_mv Lovreta, Lidija
López Pascual, Joaquín
author Lovreta, Lidija
author_facet Lovreta, Lidija
López Pascual, Joaquín
author_role author
author2 López Pascual, Joaquín
author2_role author
dc.subject.none.fl_str_mv Credit default swaps
Structural breaks
Bank-sovereign nexus
Sovereign debt crisis
topic Credit default swaps
Structural breaks
Bank-sovereign nexus
Sovereign debt crisis
description This research has financial support from the Spanish Ministry of Economy and Competitiveness (Grant ECO2012-32554)
publishDate 2020
dc.date.none.fl_str_mv 2020
2024
2024
dc.type.none.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv https://hdl.handle.net/10115/30577
url https://hdl.handle.net/10115/30577
dc.language.none.fl_str_mv Inglés
language_invalid_str_mv Inglés
dc.rights.none.fl_str_mv Atribución 4.0 Internacional
http://creativecommons.org/licenses/by/4.0/
info:eu-repo/semantics/openAccess
rights_invalid_str_mv Atribución 4.0 Internacional
http://creativecommons.org/licenses/by/4.0/
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv Springer Open
publisher.none.fl_str_mv Springer Open
dc.source.none.fl_str_mv reponame:BURJC-Digital. Repositorio Institucional de la Universidad Rey Juan Carlos
instname:Universidad Rey Juan Carlos
instname_str Universidad Rey Juan Carlos
reponame_str BURJC-Digital. Repositorio Institucional de la Universidad Rey Juan Carlos
collection BURJC-Digital. Repositorio Institucional de la Universidad Rey Juan Carlos
repository.name.fl_str_mv
repository.mail.fl_str_mv
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score 15.808905

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