Equity Prices, Credit Default Swaps, and Bond Spreads in Emerging Markets

Jorge Chan-Lau and Yoon Sook Kim

No 2004/027, IMF Working Papers from International Monetary Fund

Abstract: This paper examines equilibrium price relationships and price discovery between credit defaul swap (CDS), bond, and equity markets for emerging market sovereign issuers. Findings suggest that CDS and bond spreads converge despite various pressures that arise in the market. In most countries, however, we do not find any equilibrium price relationship between the bond and CDS markets and the equity markets. As for price discovery, our results are mixed. This stands in contrast to the empirical findings on corporate issuers in the United States and Europe.

Keywords: WP; market; CDS market; credit derivative; price discovery; Credit derivatives; bond spreads; equity prices; equilibrium; emerging markets; equity price; arbitrage forces CDS; CDS investor base; credit derivatives market; price discovery process; CDS position; CDS spread; Credit default swap; Yield curve; Securities markets; Emerging and frontier financial markets; Credit; Europe; Global (search for similar items in EconPapers)
Pages: 31
Date: 2004-02-01
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Citations: View citations in EconPapers (55)

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