Conditional dependence of US and EU sovereign CDS: A time-varying copula-based estimation

In this paper, we perform an estimation based on the copula-GARCH model to assess the dependence structure of sovereign Credit Default Swaps (CDS) spreads between European countries and the United States. Using a daily data of CDS spreads covering the period from January 2007 to March 2016, we detect non-linear dependence structure of CDS spreads between the US and European countries. Our results indicate that sovereign CDS of those European countries with financial markets comparable to the US including the UK and those countries that showed a relative resilience to the euro area debt crisis including Germany have had higher conditional dependence with the US.