scholarly journals Sovereign CDS Premiums’ Reaction to Macroeconomic News: An Empirical Investigation

Complexity ◽  
2021 ◽  
Vol 2021 ◽  
pp. 1-13
Author(s):  
Min Lu ◽  
Michele Passariello ◽  
Xing Wang
Keyword(s):  
Empirical Investigation ◽  
Credit Default Swap ◽  
Sample Period ◽  
Market Uncertainty ◽  
Macroeconomic News ◽  
Sovereign Credit ◽  
News Announcements ◽  
Credit Default ◽  
Default Swap

We assess the efficiency of the sovereign credit default swap (CDS) market by investigating how sovereign CDS spreads react to macroeconomic news announcements. Contrary to the vast majority of the existing literature, one of our main findings supports the hypothesis that news announcements reduce market uncertainty and, thus, that both better- and worse-than-expected news lower CDS prices during our sample period. In addition, we find that CDS spreads respond differently to the four macroindicators across the three different regions. Our findings might help investors in these areas to interpret the surprises of macronews announcements when making decisions in CDS markets.

scholarly journals What Explains the Sovereign Credit Default Swap Spreads Changes in the GCC Region?

2020 ◽  
Vol 13 (10) ◽  
pp. 245
Author(s):  
Nader Naifar
Keyword(s):  
United Arab Emirates ◽  
Credit Default Swap ◽  
Significant Variable ◽  
Market Uncertainty ◽  
Stock Market Returns ◽  
Explanatory Variables ◽  
Sovereign Credit ◽  
Financial Variables ◽  
Credit Default ◽  
Default Swap

This paper aimed to investigate the drivers of sovereign credit risk spreads changes in the case of four Gulf Cooperation Council (GCC) countries, namely Kingdom of Saudi Arabia (KSA), the United Arab Emirates (UAE), Qatar, and Bahrain. Specifically, we explained the changes in sovereign credit default swap (hereafter SCDS) spreads at different locations of the spread distributions by three categories of explanatory variables: global uncertainty factors, local financial variables, and global financial market variables. Using weekly data from 5 April 2013, to 17 January 2020, and the quantile regression model, empirical results indicate that the global factors outperform the local factors. The most significant variables for all SCDS spreads are the global financial uncertainty embedded in the Chicago Board Options Exchange (CBOE) volatility index (VIX) and the global conventional bond market uncertainty embedded in the Merrill Lynch Option Volatility Estimate (MOVE) index. Moreover, the MOVE index affects the various SCDS spreads only when the CDS markets are bullish. Interestingly, the SCDS spreads are not affected by the global economic policy and the gold market uncertainties. Additionally, a weak dependence is observed between oil prices and SCDS spreads. For the country-specific factors, stock market returns are the most significant variable and impact the SCDS spreads at different market circumstances.

scholarly journals THE INTERACTIONS AND TRADE-OFFS OF SOVEREIGN CREDIT DEFAULT SWAP (CDS) AND BOND SPREADS IN A DYNAMIC CONTEXT

2019 ◽  
Vol 20 (3) ◽  
pp. 466-488
Author(s):  
Ioannis A. Tampakoudis ◽  
Andrius Tamošiūnas ◽  
Demetres N. Subeniotis ◽  
Ioannis G. Kroustalis
Keyword(s):  
Credit Risk ◽  
Price Discovery ◽  
Credit Default Swap ◽  
Bond Market ◽  
Discovery Process ◽  
Sovereign Credit ◽  
Credit Default ◽  
Default Swap ◽  
Bond Spreads ◽  
Price Discovery Process

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.

Sign in / Sign up

Export Citation Format

Share Document