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Jörg Urban
- 22 March 2019
- WORKING PAPER SERIES - No. 90Effectiveness of policy and regulation in European sovereign credit risk markets: a network analysisDetails
- Abstract
- We study the impact of changes in regulations and policy interventions on systemic risk among European sovereign entities measured as volatility spillovers in respective credit risk markets. Our unique intraday CDS dataset allows for precise measurement of the effectiveness of these events in a network setting. In particular, it allows discerning interventions which entail significant changes in network cross-effects with appropriate bootstrap confidence intervals. We show that it was mainly regulatory changes with the ban of trading naked sovereign CDS in 2012 as well as the new ISDA regulations in 2014 which were most effective in reducing systemic risk. In comparison, we find that the effect of policy interventions was minor and generally not sustainable. In particular, they only had a significant impact when implemented for the first time and when targeting more than one country. For the volatility spillover channels, we generally find balanced networks with no fragmentation over time.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G01 : Financial Economics→General→Financial Crises
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation