Credit default swaps and sovereign debt markets

Hassan, M. Kabir; Ngene, Geoffrey; Yu, Jung‐Suk

doi:10.1016/j.ecosys.2014.07.002

Cited by 21 publications

(9 citation statements)

References 40 publications

(39 reference statements)

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Finally, using weekly data from January 2004 to October 2009, Hassan et al (2015) also found mixed results and concluded neither emerging sovereign market dominates the other, while Aktug et al (2013) reported mixed results. Finally, in a study of the Lithuanian market using data from September 2008 to March 2013, Kregzde and Murauskas (2015) find that the bond market leads during periods of volatility while the sCDS market is more efficient during periods of relative tranquility.…”

Section: Literature Reviewmentioning

confidence: 99%

“…However, while such deviations occur in the short run, studies have also found that in the long run, CDS and bond credit spreads move in tandem (Ammer & Cai, 2011; Aktug et al, 2013; Baba & Inada, 2009; Blanco et al, 2005; Carboni, 2011; Coudert & Gex, 2013; Forte & Pena, 2009; Hassan et al, 2015; Norden & Weber, 2009; Palladini & Portes, 2011; Varga, 2009; Zhu, 2006). This suggests that eventually efficiency in one market can spill over to the other, resulting in the co-movement of these spreads, or their co-integration and thus giving rise to price discovery studies to determine which market is more efficient.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

The Relative Role of Sovereign CDS and Bond Markets in Efficiently Pricing Emerging Market Sovereign Credit Risk

Raja

Procasky

Oyotode‐Adebile

2020

Journal of Emerging Market Finance

View full text Add to dashboard Cite

Extant literature reports mixed findings on the relative efficiency of credit default swaps (CDS) and bond markets in pricing emerging market sovereign credit risk. Using a more comprehensive data set than analyzed earlier, we reexamine this issue and find that CDS dominate bonds in the price discovery of this risk, an advantage we attribute to the greater relative liquidity of that market. One exception is during the financial crisis, suggesting that when panic hits, sovereign markets price credit risk differently. However, even then, the CDS market has a greater impact on price discovery than the bond market, indicating greater overall efficiency. JEL Classification: G11, G12, G13, G14, G23

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

The Relative Role of Sovereign CDS and Bond Markets in Efficiently Pricing Emerging Market Sovereign Credit Risk

Raja

Procasky

Oyotode‐Adebile

2020

Journal of Emerging Market Finance

View full text Add to dashboard Cite

show abstract

“…Similar findings reveal Bowe et al (2009), studying eight emerging markets from 2003 to 2006. Hassan et al (2015) and Coudert and Gex (2013) examine similar samples of emerging sovereign countries, taking into account the recent growing sovereign indebtedness. Both studies confirm that cointegration exists for all credit markets.…”

Section: Prior Literaturementioning

confidence: 99%

“…The vast majority of studies in the field focuses on corporate credit markets, supporting the leading role of CDS in the pricing process (Longstaff et al, 2003;ECB, 2004;Blanco et al, 2005;Zhu, 2006;Baba & Inada, 2007;Forte & Pena, 2009;Norden & Weber, 2009;Klenina & Mateus, 2017). As far as sovereign reference entities are concerned, the studies focusing on developing countries yielded contradictory findings (Chan-Lau & Kim, 2004;Bowe, Klimaviciene, & Taylor, 2009;Ammer & Cai, 2011;Aktug, Vasconcellos, & Bae, 2012;Hassan, Ngene, & Suk-Yu, 2015;Kregzde & Murauskas, 2015). The assessment of the relation between CDS and bond spreads for developed sovereign reference entities held no significant research interest until recently, mainly owing to inconsiderable perceived credit risk and trading volume in the respective CDS market.…”

Section: Introductionmentioning

confidence: 99%

The Interactions and Trade-Offs of Sovereign Credit Default Swap (Cds) and Bond Spreads in a Dynamic Context

Tampakoudis

Tamošiūnas

Subeniotis

et al. 2019

Journal of Business Economics and Management

View full text Add to dashboard Cite

This study provides a dynamic analysis of the lead-lag relationship between sovereign Credit Default Swap (CDS) and bond spreads of the highly indebted southern European countries, considering an extensive time sample from the period before the global financial crisis to the latest developments of the sovereign indebtedness in the euro area. We employ an integrated price discovery methodology on a rolling sample, with the intention to shed light on whether the CDS spreads can trigger rises in bond spreads, and the relative efficiency of credit risk pricing in the CDS and bond markets. In addition, we attempt to depict the evolution of the price discovery process regarding the direction of influence from one market to the other. The rolling window analysis verifies that the price discovery process evolves over time, presenting frequent alternations concerning the leading market. We find that during periods of economic turbulence the CDS market leads the bond market in price discovery, incorporating the new information about sovereign credit risk faster and more efficiently than the bond market does. This regularity should be seriously considered by private and public participants as they make investment and funding decisions. Therefore, the motivation of our paper is to identify the dominant market in terms of price discovery during a period of economic turmoil and, thus, to provide insights for decision making to investment bodies and central governments.

show abstract

“…The value of our analysis is twosome. First, in the context of a scarce literature on debt financing for sovereign entities, our results are a complement of existing studies that examine, particularly in the Eurozone, the pattern of information transmission and prices relationships between sovereign CDS and the bond market [see, e.g., Ammer and Cai (2011), Delatte et al (2012), Arce et al (2013), Calice et al (2013), and Hassan et al (2015)], or the contagion among sovereign CDS spreads [Broto and Pérez-Quirós (2015)]. 2 Second, compared to the study of Ismailescu and Phillips (2015), emphasizing a favorable effect of CDS trading initiation on bond yield spreads, we unveil that CDS trading can also have adverse effects, by increasing SDC occurrence.…”

Section: Introductionmentioning

confidence: 98%

The “Dark Side” of Credit Default Swaps Initiation: A Close Look at Sovereign Debt Crises

2018

View full text Add to dashboard Cite

We examine the effect of sovereign credit default swaps (CDS) trading initiation on the occurrence of sovereign debt crises (SDC). Estimations on a large sample of 141 countries for 1980–2013 reveal that, by affecting the fiscal stance, CDS initiation increases by around 1.5 percentage points on average the probability of SDC in countries with CDS compared to the other countries. This result holds for different robustness tests and is found to be stronger for developing countries, for countries with initial lower creditworthiness, and when the degrees of central bank independence and public sector transparency are low. Consequently, compared to existing work emphasizing favorable effects, CDS trading initiation is found to have adverse effects, by increasing the occurrence of SDC. These opposite effects should fuel the literature on measuring the consequences of CDS trading initiation, and its design and implementation from a policy perspective.

show abstract

Credit default swaps and sovereign debt markets

Cited by 21 publications

References 40 publications

The Relative Role of Sovereign CDS and Bond Markets in Efficiently Pricing Emerging Market Sovereign Credit Risk

The Relative Role of Sovereign CDS and Bond Markets in Efficiently Pricing Emerging Market Sovereign Credit Risk

The Interactions and Trade-Offs of Sovereign Credit Default Swap (Cds) and Bond Spreads in a Dynamic Context

The “Dark Side” of Credit Default Swaps Initiation: A Close Look at Sovereign Debt Crises

Contact Info

Product

Resources

About