Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2016-08-29
Number: 16-064/IV
Author-Name: Rutger-Jan Lange
Author-Workplace-Name: VU University Amsterdam, Erasmus University Rotterdam, the Netherlands
Author-Name: Andre Lucas
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Arjen H. Siegmann
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Title: Score-Driven Systemic Risk Signaling for European Sovereign Bond Yields and CDS Spreads
Abstract: We compute joint sovereign default probabilities as coincident systemic risk indicators. Instead of commonly used CDS spreads, we use government bond yield data which provide a longer data history. We show that for the more recent sample period 2008--2015, joint default probabilities based on CDS and bond yield data yield similar results. For the period 1987-2008, only the bond yield data can be used to shed light on European sovereign systemic stress. We also show that simple averages of rolling pairwise correlations do not always yield intuitive systemic risk indicators.
Classification-JEL: G01, G17, C32
Keywords: systemic risk, conditional default, credit default swaps, bond yields
File-Url: https://papers.tinbergen.nl/16064.pdf
File-Format: application/pdf
File-Size: 2409815 bytes
Handle: RePEc:tin:wpaper:20160064