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Effectiveness of policy and regulation in European sovereign credit risk markets - A network analysis

Buse, Rebekka; Schienle, Melanie; Urban, Jörg

We study the impact of changes in regulations and policy interventions on systemic risk among European sovereigns 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.

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DOI: 10.5445/IR/1000092476
Veröffentlicht am 21.03.2019
Cover der Publikation
Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht/Preprint
Publikationsjahr 2019
Sprache Englisch
Identifikator ISSN: 2190-9806
KITopen-ID: 1000092476
Verlag KIT, Karlsruhe
Umfang 37 S.
Serie Working paper series in economics ; 125
Schlagwörter Financial Crises, Policy and Regulation, Financial Stability and Systemic Risk in the Eurozone, High-frequency CDS, bootstrap spillover-measures
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