What's Mine is Yours : Sovereign Risk Transmission during the European Debt Crisis

We use a network model to study the comovement of idiosyncratic sovereign credit risk in Europe. By estimating over rolling samples, we document evidence of excess comovement during the global nancial crisis and the European debt crisis that is indicative of contagion. We show that the intensity of bilateral spillovers is related to the portfolio investment exposures among country-pairs and that the location and shape of the spillover density vary strongly and systematically in relation to published indicators of systemic stress. Because our spillover statistics can be updated daily, they represent a valuable supplement to existing weekly and monthly measures of systemic stress.