Loading...
Publication
The European tango between market risk and credit risk: A non-linear approach
| Name: | Description: | Size: | Format: | |
|---|---|---|---|---|
| 832.09 KB | Adobe PDF |
Advisor(s)
Abstract(s)
Financial markets are closely connected, with credit and market risks dynamically influencing each other, particularly during extreme events. While their interdependence is well-documented in the literature, the direction and intensity of information flow remain uncertain. Using transfer entropy on European credit and stock volatility indices, we quantify this flow and its dynamics during the most recent extreme events. Our findings reveal a shifting dominance, with the credit market leading during extreme uncertainty, challenging the conventional view of risk market leadership. These patterns underscore the need to monitor the credit market as a potential early warning sign of financial instability.
Description
Keywords
Market risk Credit risk Systemic risk Extreme events Financial contagion Dynamic analysis Information transmission
Pedagogical Context
Citation
Dora Almeida, Paulo Ferreira, Andreia Dionísio, The European tango between market risk and credit risk: A non-linear approach, Finance Research Letters, Volume 83, 2025, 107744, ISSN 1544-6123, https://doi.org/10.1016/j.frl.2025.107744.