Systemic sovereign risk in Europe: An MES and CES approach

Abstract

We transpose the concept of systemic risk measurement used in the financial literature to the sovereign debt crisis. We construct our analysis on two systemic risk measures, the Marginal Expected Shortfall (MES) and the Component Expected Shortfall (CES), that are estimated by a Dynamic Conditional Correlation model (DCC) and by non parametric techniques. We use daily data on government bonds yields 10Y and quarterly sovereign debts over the period 2001-2013 for eleven Eurozone countries. Our results allow us to identify the countries that have the highest contribution to systemic risk and to perform comparisons in terms of countries' riskiness within the Eurozone.