Author(s): Almeida, Dora ; Ferreira, Paulo ; Dionísio, Andreia
Date: 2025
Persistent ID: http://hdl.handle.net/10174/38936
Origin: Repositório Científico da Universidade de Évora
Subject(s): Market risk; Credit risk; Systemic risk; Extreme events; Financial contagion; Dynamic analysis; Information transmission
Financial markets are closely connected, with credit and market risks dynamically influencing each other, particularly during extreme events. While their interdependence is well-documented in the literature, the direction and intensity of information flow remain uncertain. Using transfer entropy on European credit and stock volatility indices, we quantify this flow and its dynamics during the most recent extreme events. Our findings reveal a shifting dominance, with the credit market leading during extreme uncertainty, challenging the conventional view of risk market leadership. These patterns underscore the need to monitor the credit market as a potential early warning sign of financial instability.
Dora Almeida, Andreia Dionísio, and Paulo Ferreira acknowledge the financial support of Fundação para a Ciência e a Tecnologia (grant UIDB/04007/2020). Dora Almeida and Paulo Ferreira also acknowledge financial support from Fundação para a Ciência e a Tecnologia (grant UIDB/05064/2020).
