Credit default swaps and sovereign debt markets
M. Kabir Hassan,
Geoffrey M. Ngene and
Economic Systems, 2015, vol. 39, issue 2, 240-252
This study investigates the link between the price discovery dynamics in sovereign credit default swaps (CDS) and bond markets and the degree of financial integration of emerging markets. Using CDS and sovereign bond spreads, the price discovery mechanism was tested using a vector error correction model. Financial integration is measured using news-based methods. We find that sovereign CDS and bond markets are co-integrated. In five out of seven sovereigns (71%), the bond market leads in price discovery by adjusting to new information regarding credit risk before CDS. In 29% of times, CDS markets are the source of price discovery. We also find a positive correlation of 0.67 between the degree of financial integration and the bond market information share. The evidence suggests that changes in sovereign credit risk and bond yields are significantly influenced by common external (global) factors, while country-specific factors play an insignificant role.
Keywords: Price discovery; Financial integration; CDS; Sovereign bonds; Credit risk (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Credit Default Swaps and Sovereign Debt Markets (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:39:y:2015:i:2:p:240-252
Access Statistics for this article
Economic Systems is currently edited by R. Frensch
More articles in Economic Systems from Elsevier Contact information at EDIRC.
Bibliographic data for series maintained by Dana Niculescu ().