Can dual-currency sovereign CDS predict exchange rate returns?

Xiaoling Pu and Jianing Zhang

Finance Research Letters, 2012, vol. 9, issue 3, 157-166

Abstract: This paper examines both the time-series and cross-sectional variation in the difference between US dollar and Euro denominated sovereign CDS spreads for a group of Eurozone countries. We find that the spread difference between dual-currency sovereign CDS significantly affects the bilateral exchange rate returns. In addition, the difference could predict the cumulative exchange rate returns up to 10days. The results strongly suggest that the difference contains important information for the exchange rate dynamics at various phases of the crisis.

Keywords: Sovereign credit default swap; Exchange rate return (search for similar items in EconPapers)
JEL-codes: F31 G12 G14 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:9:y:2012:i:3:p:157-166

DOI: 10.1016/j.frl.2012.01.001

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