Sovereign Credit Spread Spillovers in Asia

Biao Guo, Qian Han, Jufang Liang, Doojin Ryu and Jinyoung Yu
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Qian Han: Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen 361005, China
Jufang Liang: College of Finance and Statistics, Hunan University, Changsha 410006, China
Doojin Ryu: College of Economics, Sungkyunkwan University, Seoul 03063, Korea
Jinyoung Yu: College of Economics, Sungkyunkwan University, Seoul 03063, Korea

Sustainability, 2020, vol. 12, issue 4, 1-14

Abstract: Sovereign credit default swap (CDS) spreads exhibit strong co-movements across Asian countries and regions, including both emerging and developed economies. After controlling for global impacts, we examine the regional lead-lag relationships among changes in ten Asian sovereign CDS spreads. We use the pairwise Granger causality test to find that lagged changes in Kazakhstan’s sovereign CDS spreads significantly predict changes in other Asian sovereign CDS spreads. By estimating the news-diffusion model, we find evidence that this predictive relationship may be explained by information diffusion. Furthermore, we find that lagged changes in Kazakhstan’s CDS spreads have significant out-of-sample predictive power for other Asian economies, providing practical implications for sustainable investments and risk management.

Keywords: Asian market; emerging financial market; sovereign contagion; sovereign credit default swap; sustainable investments (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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