scholarly journals Sovereign Risk and the Pricing of Corporate Credit Default Swaps

2014 ◽  
Author(s):  
Matthias Haerri ◽  
Stefan Morkoetter ◽  
Simone Westerfeld
Keyword(s):  
Credit Default Swaps ◽  
Sovereign Risk ◽  
Corporate Credit ◽  
Credit Default

scholarly journals Sovereign risk and the pricing of corporate credit default swaps

2015 ◽  
Vol 11 (1) ◽  
pp. 1-27 ◽  
Author(s):  
Matthias Haerri ◽  
Stefan Morkoetter ◽  
Simone Westerfeld
Keyword(s):  
Credit Default Swaps ◽  
Sovereign Risk ◽  
Corporate Credit ◽  
Credit Default

Multidimensional Assessment of Economies by the Level of Sovereign Risk Premium

2020 ◽  
Vol 2020 (2) ◽  
pp. 3-27
Author(s):  
Sergey Drobyshevsky ◽  
Pavel Trunin ◽  
Lyudmila Gadiy ◽  
Mariya Chembulatova
Keyword(s):  
Monetary Policy ◽  
Risk Premium ◽  
International Market ◽  
Developed Countries ◽  
Credit Default Swaps ◽  
Sovereign Risk ◽  
Political Risks ◽  
Credit Default ◽  
Monetary Authorities

The analysis of the international market for credit default swaps (CDS) shows that the interdependence of sovereign CDS spreads is increasing and the market remains segmented. However, the reduction in the variation of sovereign CDS spreads means increased competition for capital and should be taken into account by monetary authorities of developed countries when they tighten monetary policy. The article shows a significant role of political risks in determining the level of sovereign risk.

scholarly journals Determinants of credit default swaps implied ratings during the crisis: was sovereign risk mispriced?

2018 ◽  
Vol 15 (3) ◽  
pp. 1-14
Author(s):  
Maria Alberta Oliveira ◽  
Carlos Santos
Keyword(s):  
Risk Premium ◽  
Probit Model ◽  
Credit Default Swaps ◽  
Matching Theory ◽  
Model Specification ◽  
Sovereign Risk ◽  
Global Risk ◽  
Varying Coefficients ◽  
Credit Default ◽  
The Impact

This paper addresses the question of whether sovereign risk pricing was related to macroeconomic fundamentals, between 2007 and 2015, in a sample of OECD countries. The authors argue that the conflicting evidence in the literature is due to poor methodology options. The researchers innovate by modelling sovereign credit default swaps implied ratings as our sovereign risk proxy, instead of spreads, avoiding common pitfalls. Furthermore, the authors improve the variable selection, model specification and the econometric procedures used. A panel ordered probit model is chosen, assuring robust inference. The authors relax the parallel lines assumption, allowing for rating-varying coefficients of explanatory variables. The result is the first congruent model of sovereign risk during the years of the financial crisis and of the Euro Area crisis. Fiscal space variables, economic activity indicators, variables pertaining to external imbalances, and contagion proxies are relevant, with effects matching theory priors. The scientists clarify conundrums in the previous literature, posed by lack of significance of some macro fundamentals and by puzzling signs of some estimated coefficients. Moreover, this is the first paper to estimate not only the global risk premium, but also the impact of changing risk aversion. The authors find no support for claims of sovereign risk mispricing during the sample period. The results allow relevant policy conclusions, namely concerning the validity of different fiscal consolidation paths in financially distressed countries.

Property Rights and CDS Spreads: When Is There a Strong Transfer Risk from the Sovereigns to the Corporates?

2017 ◽  
Vol 07 (04) ◽  
pp. 1750013 ◽  
Author(s):  
Jennie Bai ◽  
Shang-Jin Wei
Keyword(s):  
Property Rights ◽  
Default Risk ◽  
Sovereign Risk ◽  
Corporate Default ◽  
Rights Protection ◽  
Corporate Credit ◽  
Property Rights Protection ◽  
Credit Default ◽  
Strong Property

When a sovereign faces the risk of debt default, it attempts to expropriate the private sector. But the likelihood of a transfer from the sovereign risk to corporate default risk can be mitigated by legal institutions that provide strong property rights protection. Using a novel credit default swaps (CDSs) dataset covering both government and corporate entities across 30 countries, this paper studies the strength of the transfer risk and the role of institutions in mitigating such risk. We find that sovereign risk on average has a statistically and economically significant influence on corporate credit risk. All else equal, a 100 basis points increase in the sovereign CDS spread leads to an increase in corporate CDS spreads by 74 basis points. The sovereign–corporate relation varies across corporations, with state-owned companies exhibiting a stronger relation. However, strong property rights institutions tend to weaken the connection. In contrast, contracting institutions (protection of creditor rights or minority shareholder rights) do not appear to matter in this context.

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