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Cross correlations in European government bonds and EuroStoxx

Author

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  • Jan Jurczyk
  • Alexander Eckrot
Abstract
We use principle component analysis (PCA) of cross correlations in European government bonds and European stocks to investigate the systemic risk contained in the European economy. We tackle the task to visualize the evolution of risk, introducing the conditional average rolling sum (CARS). Using this tool we see that the risk of government bonds and stocks had an independent movement. But in the course of the European sovereign debt crisis the coupling between bonds and stocks has strongly ncreased. This results in an in-phase oscillation of risk for both markets since mid 2010. In our data, we observe a steep amplitude increase, suggesting a high vulnerability of the two coupled systems.

Suggested Citation

  • Jan Jurczyk & Alexander Eckrot, 2015. "Cross correlations in European government bonds and EuroStoxx," Papers 1502.07367, arXiv.org, revised Jul 2015.
    • Handle: RePEc:arx:papers:1502.07367
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    References listed on IDEAS

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