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Sovereign CDS Spread Determinants and Spill-Over Effects

Author

Listed:
  • Spyros Spyrou

    (Athens University of Economics and Business)

  • Emilios Galariotis

    (Audencia Nantes School of Management,)

  • Panagiota Makrichoriti

    (Athens University of Economics and Business)

Abstract

This paper examines the determinants of CDS spreads and potential spillover effects for Eurozone countries during the recent financial crisis in the EU. We employ a Panel Vector Autoregressive (PVAR) model which combines the advantages of traditional VAR modelling with the advantages of a panel-data approach. In addition to variables that proxy for global and financial market spread determinants we also employ variables that proxy for behavioral determinants. We find that the determinants of CDS variance are neither uniform nor stable during different periods and different countries. For instance, as we move from 2008 to 2014 the impact of the slope of the term structure on CDS spread variance is increasing for Spain, Portugal, Italy, Greece, Ireland, and decreasing for Germany, France, Netherlands, Belgium and Austria. Other findings indicate that investor sentiment may be an important CDS spread determinant during the period between 2008 and 2010, along with other factors, while spillover effects may run from Spain and Italy to core countries while spillover effects from Portugal, Greece, and Ireland are of minor importance.

Suggested Citation

  • Spyros Spyrou & Emilios Galariotis & Panagiota Makrichoriti, 2016. "Sovereign CDS Spread Determinants and Spill-Over Effects," Proceedings of International Academic Conferences 3606062, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:3606062
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    File URL: https://iises.net/proceedings/23rd-international-academic-conference-venice/table-of-content/detail?cid=36&iid=085&rid=6062
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    More about this item

    Keywords

    Financial Crisis; CDS; Spreads; Panel VAR; Sentiment;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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