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Sovereign bond spreads and CDS premia in the Eurozone: A causality analysis || Diferenciales de bonos soberanos y primas de CDS en la zona euro: un análisis de causalidad

Author

Listed:
  • Téllez Valle, Cecilia

    (Department of Financial Economics and Accounting, Pablo de Olavide University (Spain))

  • Martín García, Margarita

    (Department of Financial Economics and Accounting, Pablo de Olavide University)

  • Ramón-Jerónimo, María A.

    (Department of Business Administration and Marketing, Pablo de Olavide University)

  • Martín Marín, José Luis

    (Department of Financial Economics and Accounting, Pablo de Olavide University)

Abstract

This article presents an analysis of the possible relationship between the spreads of sovereign bonds and the premia of credit default swaps (CDS) to determine whether they are useful tools for the measurement of the sovereign risk either separately or by taking into account the joint evolution of their values. The data refer to ten countries in the Eurozone along 2008–2016. By applying the causality Granger test for these variables, after six different ways of proxy, CDS premia are found to be the cause of the risk spreads in certain cases, although a bidirectional relationship is predominant in many other cases. So the CDS market contains clear and highly useful information on the sovereign risk.

Suggested Citation

  • Téllez Valle, Cecilia & Martín García, Margarita & Ramón-Jerónimo, María A. & Martín Marín, José Luis, 2020. "Sovereign bond spreads and CDS premia in the Eurozone: A causality analysis || Diferenciales de bonos soberanos y primas de CDS en la zona euro: un análisis de causalidad," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 30(1), pages 58-78, December.
    • Handle: RePEc:pab:rmcpee:v:30:y:2020:i:1:p:58-78
    DOI: 10.46661/revmetodoscuanteconempresa.3872
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    References listed on IDEAS

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    More about this item

    Keywords

    sovereign risk; credit risk; CDS; causality.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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