Sovereign Credit Default Swap Market Volatility in BRICS Countries Before and During the COVID-19 Pandemic

Letife Özdemir, Simon Grima, Ercan Özen, Ramona Rupeika-Apoga and Inna Romanova
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Letife Özdemir: Afyon Kocatepe University
Simon Grima: University of Malta
Ercan Özen: University of Usak
Ramona Rupeika-Apoga: Faculty of Business, Management and Economics, University of Latvia
Inna Romanova: Faculty of Business, Management and Economics, University of Latvia

Scientific Annals of Economics and Business (continues Analele Stiintifice), 2024, vol. 71, issue 1, 21 - 42

Abstract: SCDS (Sovereign Credit Default Swaps) are becoming more widely used as a country risk indicator after 2008 and stand out for providing real-time information rather than periodic reporting. The COVID-19 pandemic has led to economic disruptions and a decline in international trade. Understanding how the Pandemic affects SCDS return volatility in emerging economies like BRICS forms the motivation for our research. With this study, we aim to determine the impact of the COVID-19 Pandemic on SCDS return volatility in Brazil, Russia, India, China and South Africa, known as the BRICS countries. We used the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model to analyze the data, which consisted of the daily closing price data for SCDS. The date of the first COVID-19 case in each country has been taken as the beginning of the COVID-19 Pandemic in each country. The results of the estimated GARCH models show that the volatility processes of the SCDS return series differ between periods. EGARCH model results indicate that shocks created by news in these countries during the Pandemic have a small and persistent effect on Brazil and Russia's SCDS return volatility, while they have a large and enduring effect on China and South Africa's SCDS return volatility. The findings will guide policymakers and portfolio managers in determining risk management models.

Keywords: SCDS; E-GARCH; Volatility; BRICS; COVID-19 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aic:saebjn:v:71:y:2024:i:1:p:21-42:n:3

DOI: 10.47743/saeb-2024-0005

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