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Persistence of shocks in CDS returns on Croatian bonds: Quantile autoregression approach

Author

Listed:
  • Mile Bošnjak

    (University of Zagreb, Faculty of Economics and Business, JF Kennedy Square 6, 10000 Zagreb, Croatia)

  • Ivan Novak

    (University of Zagreb, Faculty of Economics and Business, JF Kennedy Square 6, 10000 Zagreb, Croatia)

  • Maja Bašiæ

    (University of Zagreb, Faculty of Economics and Business, JF Kennedy Square 6, 10000 Zagreb, Croatia)

Abstract

The paper aims to examine persistence of shocks in returns on CDS for 5Y Croatian bonds. Based on sample of daily data from January 6, 2004 up until December 13, 2019 the paper evaluated research hypothesis that assumed persistence of shocks in returns on 5Y Croatian bond. To evaluate the research hypothesis, the paper employed quantile autoregression approach and nonparametric time varying autoregreession approach. The empirical results rejected the research hypothesis assuming persistence of shocks in returns on CDS for 5Y Croatian bonds. Based on the results from this paper, returns on CDS from for 5Y Croatian bonds are in line with efficient market hypothesis for endogenous shocks of small magnitude and at the highest level of endogenous shocks. Furthermore, efficient market hypothesis holds during the calm periods, while during the periods with more dynamics in CDS prices the paper suggests profitable strategy for trader and investors. Eventually, the paper contributes to the ongoing discussion regarding efficient market hypothesis while revealing the case of returns on CDS for 5Y Croatian bonds. Furthermore, the paper suggests trading and investment strategies for investors.

Suggested Citation

  • Mile Bošnjak & Ivan Novak & Maja Bašiæ, 2019. "Persistence of shocks in CDS returns on Croatian bonds: Quantile autoregression approach," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(2), pages 759-775.
    • Handle: RePEc:rfe:zbefri:v:37:y:2019:i:2:p:759-775
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    CDS returns; bonds; quantile autoregression; persistence of shocks; efficient market hypothesis;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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