1 Eurozone Sovereign Contagion: Evidence From the CDS Market (2005-2010) Kalbaska A. a,┼ , Gątkowski M. b,  a University of Siena, Department of Economics, 7 S. Francesco Sq, Siena, 53100, Italy. b University of Essex, Centre for Computational Finance and Economic Agents, Wivenhoe Park, Colchester, CO4 3SQ, United Kingdom . Abstract This paper analyses the dynamics of the credit default swap (CDS) market of PIIGS, France, Germany and the UK for the period of 2005-2010. The study is performed on the basis of the Datastream and DTCC data on CDS spreads and the BIS data on cross-border exposures. The analysis of the data shows that sovereign risk mainly concentrates in the EU countries. The EWMA correlation analysis and the Granger-causality test demonstrate that there was contagion effect since correlations and cross-county interdependencies increased already after August 2007. Furthermore, the IRF analysis shows that among PIIGS the CDS markets of Spain and Ireland have the biggest impact on the European CDS market, whereas the CDS market of the UK does not cause a big distress in the Eurozone. The adjusted correlation analysis confirms that Greece and other PIIGS (even Spain and Italy) have lower capacity to trigger contagion than core EU countries. Besides, Portugal is the most vulnerable country in the sample, whereas the UK is the most immune to shocks. Keywords: credit default swaps, sovereign risk, contagion, PIIGS, Eurozone JEL Classification: E44, F34, G01, G15, H63 Highlights:  Sovereign risk mainly concentrates in the EU countries  France, Germany and the UK are heavily exposed to PIIGS  The global financial crisis triggered the sovereign debt crisis  PIIGS have lower capacity to trigger contagion than core EU countries  Portugal is the most vulnerable, whereas the UK is the most immune to shocks We thank Prof. Alessandro Vercelli from University of Siena and Prof. Sheri Markose from University of Essex for their supervision; Dr.Simone Giansante and Ali Rais Shaghaghi for interesting remarks and useful discussions. We are grateful to participants of the conference ‘Can it Happen Again?’ at the University of Macerata, Italy (October 2, 2010). We also thank the anonymous referee for the valuable comments and suggestions. As usual all remaining errors are ours. ┼ Email address: kalbaska@unisi.it.  Corresponding author, email address: mgatko@essex.ac.uk. Kalbaska A., Gatkowski M., "Eurozone Sovereign Contagion: Evidence From the CDS Market (2005-2010)", Journal of Economic Behavior & Organization, special issue: "Financial instability and contagion", accepted for publication, 2012