It has been shown, that the systemic risk contained in financial markets can be indicated by the change of cross-correlation between different indices and stocks. This change is tracked by using principle component analysis (PCA) . We use this technique to investigate the systemic risk contained in European economy by comparing government long term bonds and indices .
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 .
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It has been shown, that the systemic risk contained in financial markets can be indicated by the change of cross-correlation between different indices and stocks. This change is tracked by using
We use
R
. We use this technique
of cross correlations in European government bonds and European stocks
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European economy by comparing government long term bonds and indices
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