Financial Contagion During the European Sovereign Debt Crisis

Abstract

From early 2010, the Euro Area has faced a severe sovereign debt crisis. I use multi- and univariate EGARCH-models to assess whether contagious effects are identifiable during this crisis, or whether countries’ problems are instead due to fundamental problems founded in the affected economies themselves. The multivariate analysis reveals a generally decreasing co-movement of government bond returns which increased only temporarily. In contrast, the univariate analysis is directed more to detecting channels of contagion. The analysis of rating announcements concerning Greece as well as crisis news in general, reveals that there are some evidences for mean and volatility contagion.