Have Contagion Effects Occurred in the Eurozone During the Sovereign Debt Crisis?

Abstract

The aim of this paper is to detect the existence of financial contagion effects in the Eurozone countries during the sovereign debt crisis. To achieve this purpose, the authors will analyse the contagion effects through the event study methodology and simple regression model, investigating how relevant European press releases (since now called news) affected the performance of Credit Default Swap (CDS), which is a widely used type of credit derivative able to protect an investor from the counter-party's inability to repay its debt. In the study the authors will consider the CDS of three European countries, such as Greece, Germany and United Kingdom, which have different economic and monetary conditions between each other. In conclusion, the outputs of the study will highlight that a financial contagion exists among the selected news and the Eurozone countries, Greece and Germany; whereas there is no considerable evidence of contagion on United Kingdom’s CDS.