A study on the dynamics of sovereign risk spillover networks:Evidence from the countries along the Belt and Road

With the deepening of the globalization of financial markets and the closer political connections between countries in the world, the transnational contagion of sovereign risk has been confirmed by reality. Under the background of the "Belt and Road Initiative", this paper investigates node characteristics and structural characteristics of sovereign risk spillover network among belt-road countries from the perspective of sovereign risk networking and regional grouping using spillover index approach based on FEV (forecast error variance) decomposition. We find that the overall spillover effect of the 25 countries alongside the "Belt and Road" is relatively high, and the Central and Eastern European countries is dominant in the sovereign risk spillover network of countries alongside the route. In addition, the overall sovereign risk spillover effect alongside the route shows obvious dynamic characteristics and phase characteristics over time. The sovereign risk spillover effect between China and ASEAN (Association of Southeast Asian Nations) group is always the strongest at any stage, while the Central and Eastern Europe is the regional group of countries that can well reveal changes in the overall sovereign risk spillover effect alongside the route. All these findings can help macro policy-makers and investors participating in the sovereign debt and related derivatives markets understand the essential characteristics and internal structure of the sovereign risk spillover network along the "Belt and Road".