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Determinants of dependence structures of sovereign credit default swap spreads between G7 and BRICS countries

Lu Yang (), Lei Yang and Shigeyuki Hamori ()

International Review of Financial Analysis, 2018, vol. 59, issue C, 19-34

Abstract: We investigate the time-varying dependence structures between G7 and BRICS countries' sovereign credit default swap (CDS) spreads for different timescales by combining wavelet analysis and the copula approach. First, by employing wavelet analysis, we find increasing dependence between the G7 and BRICS's CDS spreads with a decreasing significance level as the timescale increases. Second, the CDS spread dependence across most timescales is better described by the time-varying, than the time-invariant, copulas. Third, gold served as a risk-haven asset may play a good indicator to measure the sovereign credit risk, as well as its dependence. Additionally, the CDS spreads for both G7 and BRICS countries behave simultaneously when the economy is prosperous, but not for the economic depression period. Finally, from the regression of the wavelet components, we find no significant results for the short-term wavelets, whereas significant results are present for both the middle- and long-term scales.

Keywords: Sovereign credit default swap; Copula; Wavelet; Dependence (search for similar items in EconPapers)
JEL-codes: G15 E44 E51 F41 G32 H63 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:finana:v:59:y:2018:i:c:p:19-34