The risk of Greece exiting the euro area (Grexit) has unsettled financial markets regularly over recent years. A New Year poll suggested that most Greeks feel that 2016 will see the threat of Grexit return. However, even if the probability of Grexit rises again, that does not necessarily mean that financial markets will respond with similar volatility. Indeed, this post shows that, based on the sensitivity of international asset prices to those in Greece itself, each successive episode of Greek stress has in turn caused less stress abroad.
To measure the sensitivity of global financial markets to Grexit risk I regress euro area, UK and US asset prices on a composite of Greek asset prices. I do this for three different episodes when Greek financial markets exhibited signs of stress and there was also a high volume of news articles on Bloomberg that referred to Grexit risk. For most euro area, UK and US asset prices, their sensitivity to Greek stress declined in each successive episode.