A spatial analysis of contagion in sovereign credit default swaps
JOURNAL OF FINANCIAL ECONOMETRICS, sa.3, 2025 (SSCI, Scopus)
- Yayın Türü: Makale / Tam Makale
- Basım Tarihi: 2025
- Doi Numarası: 10.1093/jjfinec/nbaf011
- Dergi Adı: JOURNAL OF FINANCIAL ECONOMETRICS
- Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, EconLit
- Ondokuz Mayıs Üniversitesi Adresli: Evet
Özet
In this article, we propose a spatio-temporal model to investigate the dynamics of contagion in the credit event risks of sovereigns. More specifically, we examine how changes in the credit default swap (CDS) spreads of a sovereign are influenced by the CDS spreads of other sovereigns over time. Our model incorporates spatial, temporal, and spatio-temporal lags of CDS spreads while accounting for unobserved heterogeneity across sovereigns and time periods. We consider several candidates for the underlying contagion network matrix using cross-border domestic bank exposures, geographical distances between sovereigns, and pairwise correlations of CDS spreads. We propose an efficient Bayesian algorithm for estimation and a simple method to address nested and non-nested model selection problems. Using a quarterly dataset of fourteen sovereigns from 2009 to 2022, we find evidence of contagion in CDS spreads which was relatively stronger during the period 2009-2012.