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International extreme sovereign risk connectedness: Network structure and roles

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  • Huang, Wei-Qiang
  • Liu, Peipei
  • Zhu, Yao-Long

Abstract

With network topology measures, we can model the global and individual properties of international extreme sovereign risk spillovers and understand how shocks propagate. Hence, using dynamic connectedness based on a TVP-VAR model, we construct daily extreme sovereign risk spillover networks based on defined extreme risk series among the G20. Our purpose is to creatively explore the network structures and describe international connectedness. We find that system- and country-level measures are all more sensitive to global systemic events, such as the COVID-19 pandemic. Country-level analysis shows that emerging countries such as Mexico, South Africa and European countries such as Spain emit and receive larger risk spillovers. Using the Logit and threshold regression, we creatively explore whether these system- and country-level measures can explain the probability of countries’ extreme sovereign risk outbreaks. The results show that system-level measures such as total risk spillover strength and country-level measures all play positive roles. Specifically, the greater the total risk spillover strength, the more central countries’ position and the greater the probability of countries’ extreme sovereign risk outbreak. Most importantly, their roles are the largest when the total risk spillover strength is at the middle level.

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  • Huang, Wei-Qiang & Liu, Peipei & Zhu, Yao-Long, 2025. "International extreme sovereign risk connectedness: Network structure and roles," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:ecofin:v:76:y:2025:i:c:s1062940824002808
    DOI: 10.1016/j.najef.2024.102355
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    More about this item

    Keywords

    Extreme sovereign risk; Connectedness; Network structure; TVP-VAR model; Logit regression; Threshold regression;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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