The Nexus between Sovereign Default Risk and Bank Fragility: Evidence from China
The Nexus between Sovereign Default Risk and Bank Fragility: Evidence from China

Author(s): Oleg Deev, Martin Hodula
Subject(s): Business Economy / Management, Evaluation research, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: sovereign default risk; bank default risk; CDS; China; risk transfer;
Summary/Abstract: In this paper we investigate the interdependence of the sovereign default risk and its domestic banks on the example of China during the time period of 2003-2011using credit default swaps as a proxy for default risk. China’s banking industry has predominantly remained state-owned, even after a series of significant reforms in the last two decades. We employ bivariate vector autoregressive (VAR) and vector error correction (VECM) framework to analyze the short- and long-run dynamics of the chosen data series. To

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