The Global Financial Cycle and Country Risk in Emerging Markets During Stress Episodes: A Copula-CoVaR Approach
Authors
Melo-Velandia, Luis Fernando
Romero-Chamorro, José Vicente
Ramírez-González, Mahicol Stiben
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Publication date
2023-05-08
Document language
eng
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Abstract
In this paper,we analyze the tail-dependence structure of credit default swaps (CDS) and the global financial cycle for a group of eleven emerging markets. Using a Copula-CoVaR model,we provide evidence that there is a significant taildependence between variables related with the global financial cycle, such as the VIX, and emerging market CDS. These results are particularly important in the context of distressed global financial markets (right tail of the distributions of the VIX) because they provide international investors with relevant information on how to rebalance their portfolios and a more suitable metric to analyze sovereign risk that goes beyond the traditional CoVaR. Additionally, we present further evidence supporting the importance of the global financial cycle in sovereign risk dynamics.
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Códigos JEL
G15 - International Financial Markets, G17 - Financial Forecasting and Simulation, C58 - Financial Econometrics
item.page.subjectjelspa
Keywords
Global financial cycle, Country risk, CDS, Copula-CoVaR
