Publication details
The Nexus between Sovereign Default Risk and Bank Fragility: Evidence from China
| Authors | |
|---|---|
| Year of publication | 2014 |
| Type | Article in Proceedings |
| Conference | European Financial Systems 2014. Proceedings of the 11th International Scientific Conference |
| MU Faculty or unit | |
| Citation | |
| Field | Management and administrative |
| Keywords | sovereign default risk; bank default risk; CDS; China; risk transfer |
| Description | In this paper we investigate the interdependence of the sovereign default risk and its domestic banks on the example of China during the time period of 2003-2011 using credit default swaps as a proxy for default risk. China’s banking industry has predominantly remained state-owned, even after a series of significant reforms in the last two decades. We employ bivariate vector autoregressive (VAR) and vector error correction (VECM) framework to analyze the short- and long-run dynamics of the chosen data series. To describe the direction of the discovered dynamics, we use Granger causality. We find evidence of a stable long-run relationship between sovereign and bank CDS spreads in chosen time period. The relationship was significant only in a state-bank direction and not vice versa. |
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