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The dynamics of sovereign credit default swap and bond markets: empirical evidence from the 2001 to 2007 period

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  • Rahmi Erdem Aktug
  • Geraldo Vasconcellos
  • Youngsoo Bae

Abstract

This article evaluates the dynamic relationship between sovereign Credit Default Swap (CDS) and bond markets over the period 2001 to 2007 across 30 emerging markets. Our results suggest that the bond markets play a significant role in the price discovery process, which is in contrast with the corporate studies. We also show that the CDS markets play a more dominant role in lead--lag relationships compared to earlier studies on the sovereign credit markets.

Suggested Citation

  • Rahmi Erdem Aktug & Geraldo Vasconcellos & Youngsoo Bae, 2012. "The dynamics of sovereign credit default swap and bond markets: empirical evidence from the 2001 to 2007 period," Applied Economics Letters, Taylor & Francis Journals, vol. 19(3), pages 251-259, February.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:3:p:251-259
    DOI: 10.1080/13504851.2011.572839
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    References listed on IDEAS

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    1. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
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    3. Norden, Lars & Weber, Martin, 2004. "The comovement of credit default swap, bond and stock markets: An empirical analysis," CFS Working Paper Series 2004/20, Center for Financial Studies (CFS).
    4. Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2789-2811, November.
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    6. Frank Packer & Chamaree Suthiphongchai, 2003. "Sovereign credit default swaps," BIS Quarterly Review, Bank for International Settlements, December.
    7. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
    8. Forte, Santiago & Peña, Juan Ignacio, 2009. "Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2013-2025, November.
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    14. Michael Adler & Jeong Song, 2010. "The behavior of emerging market sovereigns' credit default swap premiums and bond yield spreads," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 31-58.
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    Cited by:

    1. Mikhail Stolbov, 2017. "Determinants of sovereign credit risk: the case of Russia," Post-Communist Economies, Taylor & Francis Journals, vol. 29(1), pages 51-70, January.
    2. Murat EREN, & Selim BAÅžAR, 2016. "Effects Of Credit Default Swaps (Cds) On Bist-100 Index," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(Special I), pages 1-27, august.
    3. J. Alsubaiei, Bader & Calice, Giovanni & Vivian, Andrew, 2021. "Sovereign CDS and mutual funds: Global evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    4. Montes, Gabriel Caldas & Maia, João Pedro Neves, 2023. "Who speaks louder, financial instruments or credit rating agencies? Analyzing the effects of different sovereign risk measures on interest rates in Brazil," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    5. Gabriel Caldas Montes & Iven Silva Valpassos, 2018. "Discretionary fiscal policy and sovereign risk," Economics Bulletin, AccessEcon, vol. 38(3), pages 1343-1365.
    6. Boris T. Petkov, 2017. "Excessive Debt or Excess Savings -- Transition Countries Sovereign Bond Spread Assessment," International Business Research, Canadian Center of Science and Education, vol. 10(3), pages 91-119, March.
    7. Rahmi Erdem Aktug, 2015. "Empirical dynamics of emerging financial markets during the global mortgage crisis," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 15(1), pages 17-36, March.
    8. Montes, Gabriel Caldas & Souza, Ivan, 2020. "Sovereign default risk, debt uncertainty and fiscal credibility: The case of Brazil," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    9. Jorge Miguel Lopo Gonçalves Andraz & Nélia Maria Afonso Norte, 2019. "Who leads the price determination in periods of financial distress: Credit default swaps or bonds spreads? Evidence for a set of EU member States," CEFAGE-UE Working Papers 2019_04, University of Evora, CEFAGE-UE (Portugal).

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