Volatility spillovers in the European bank CDS market

2015

From the 2007 subprime crisis to the recent Eurozone debt crisis,the banking industry has experienced terrible financial instabilitywith increasing volatility levels of bank default probability. UsingEuropean CDS spreads data from January 2006 to March 2013, thispaper sheds light on the impact of three recent significant events ofcredit risk volatility transmission between, firstly, Eurozone andnon-Eurozone banks, and then between distressed peripheral andcore countries inside the Eurozone. We employ an asymmetricmultivariate BEKK model to measure cross-market volatility spil-lovers. We find that both recent crises are distinct episodes. Theglobal financial crisis that originated outside Eu…