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Sovereign default risk linkage: Implication for portfolio diversification

Hassan, K., Hoque, A.ORCID: 0000-0001-8369-6653 and Gasbarro, D. (2017) Sovereign default risk linkage: Implication for portfolio diversification. Pacific-Basin Finance Journal, 41 . pp. 1-16.

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Dynamic conditional correlation, principal components analysis, and impulse response function analysis are employed to examine the interdependence of sovereign credit default swaps (SCDS) in the different emerging market regions of Asia, Europe and Latin America. Using these measures, Asian emerging markets show strong linkage among themselves, both during and after the financial crisis, but less responsive to shocks in European and Latin American regions. Emerging markets in Europe and Latin America have weaker regional bonds than Asian markets. Accordingly, knowledge of the varying correlations, commonality and persistence of shocks existing in intra- and inter-regional markets provides insight for superior portfolio diversification with SCDS.

Item Type: Journal Article
Murdoch Affiliation(s): School of Management and Governance
Publisher: Elsevier
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