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Daily pricing of emerging market sovereign CDS before and during the global financial crisis

Author

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  • Fender, Ingo
  • Hayo, Bernd
  • Neuenkirch, Matthias

Abstract

In this paper, we study the determinants of daily spreads for emerging market sovereign credit default swaps (CDSs) over the period April 2002–December 2011. Using GARCH models, we find, first, that daily CDS spreads for emerging market sovereigns are more related to global and regional risk premia than to country-specific risk factors. This result is particularly evident during the second subsample (August 2007–December 2011), where neither macroeconomic variables nor country ratings significantly explain CDS spread changes. Second, measures of US bond, equity, and CDX High Yield returns, as well as emerging market credit returns, are the most dominant drivers of CDS spread changes. Finally, our analysis suggests that CDS spreads are more strongly influenced by international spillover effects during periods of market stress than during normal times.

Suggested Citation

  • Fender, Ingo & Hayo, Bernd & Neuenkirch, Matthias, 2012. "Daily pricing of emerging market sovereign CDS before and during the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2786-2794.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:10:p:2786-2794
    DOI: 10.1016/j.jbankfin.2012.06.017
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    More about this item

    Keywords

    Credit default swaps; Emerging markets; Financial crisis; Spillovers;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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