An Event Study Methodological Approach Mixed with Network Analysis to Study SCDS Market Reactions to ECB Policy Announcements
An Event Study Methodological Approach Mixed with Network Analysis to Study SCDS Market Reactions to ECB Policy Announcements

Summary/Abstract: The most intense periods of financial difficulties have highlighted the need for new evidence regarding the understanding of the transmission of sovereign credit risk between states. Using the Diebold and Yilmaz (2014) and an event study methodology based on Swanson et al. (2011), we study how UMP announcements impact market expectations and interconnectedness, focusing on both Western European and CEE states. The results show that the transmission of spillover effects is either constant or diminished for CEE states when asset purchase programs are implemented: markets in Latvia, Hungary, and Croatia respond promptly to UMP announcements, detaching from high credit risk networks or maintaining positions in low-risk networks. Additionally, UMP significantly reduced CDS spreads across the European Union, with pronounced effects in GIIPS states and positive effects in CEE states like Lithuania, Bulgaria, Romania, Croatia, and Poland.

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