Essays on the Euro zone Sovereign Debt Crisis and Financial Markets

Doctoral thesis (2014)

This thesis analyses the euro zone sovereign crisis from a macroeconomic perspective with a focus on the interaction between sovereign risk, financial markets and the real economy at the euro area ... [more ▼]

This thesis analyses the euro zone sovereign crisis from a macroeconomic perspective with a focus on the interaction between sovereign risk, financial markets and the real economy at the euro area currency union-wide level. The first part consists of an empirical study on the euro zone asset markets. It computes and analyses the dynamic comovements of stock and sovereign bonds for the core and the periphery of the euro zone focusing on the geographical and asset dimension of the markets. This comprehensive approach allows shading new light on European financial markets with respect to studies that focus at only one dimension. Results suggest that further economic integration would be desirable but that, at the moment, Europe is a tale of two regions. The second part of the thesis consists of two chapters dealing with the modeling of the euro zone financial markets and the study of the international transmission of shocks. Chapter 3 focuses on the international transmission of sovereign debt default and looks at the spillover from the periphery to the core region via financial intermediaries. The study of the structure of the banking sector suggests the desirability of more banking integration for the euro area welfare. Chapter 4 expands the model of Chapter 3 by introducing international equity markets. This framework allows exploring the relation between financial intermediaries and asset markets for the euro zone. Results point to the key role of this interaction as a driver of the time varying stock-bond correlation. [less ▲]

Macroeconomic determinants of European stock and government bond correlations: A tale of two regions

E-print/Working paper (2013)

This paper studies the dynamic correlation between stocks, between government bonds and between stocks and bonds within the Euro-zone in the last decade. In order to better understand the development of ... [more ▼]

This paper studies the dynamic correlation between stocks, between government bonds and between stocks and bonds within the Euro-zone in the last decade. In order to better understand the development of the financial market we argue that it is necessary to analyse all such relations simultaneously rather than focus at one. We firstly calculate the dynamic correlation for the previous asset classes. Results presented at the asset-region level, i.e. north-stock, north-bonds, south-stocks and south-bonds, visualise the divergence in integration in Europe and highlight the he- terogeneity in these markets. Secondly, we study the macroeconomic factors that determine these correlations. We find that, when we allow for regional division, not only cross-asset correlations within regions behave differently from each other, but also cross-assets cross-regions dynamic correlations can be explained with ma- croeconomic factors such as the relative market uncertainty between countries and balance of payments dynamics. [less ▲]