Economics at your fingertips  

Regulation of uncovered sovereign credit default swaps – evidence from the European Union

Florian Kiesel, Felix Lücke and Dirk Schiereck

Journal of Risk Finance, 2015, vol. 16, issue 4, 425-443

Abstract: Purpose - – This study aims to analyze the impact and effectiveness of the regulation on the European sovereign Credit Default Swap (CDS) market. The European sovereign debt crisis has drawn considerable attention to the CDS market. CDS have the ability of a speculative instrument to bet against a sovereign default. Therefore, the Regulation (EU) No. 236/2012 was introduced as the worldwide first uncovered CDS regulation. It prohibits buying uncovered sovereign CDS contracts in the European Union (EU). Design/methodology/approach - – First, this paper measures spread changes of sovereign CDS of the EU member states around regulation specific event dates to detect whether and when European sovereign CDS reacts to regulation announcements and the enforcement of regulation. Second, it compares the CDS long-term stability of the EU sample with a non-EU sample based on 44 non-EU sovereign CDS entities. Findings - – The results indicate widening CDS spreads prior to the regulation, and stable CDS spreads following the introduction of the regulation. In particular, sovereign CDS of European crisis-hit entities are stable since the regulation was introduced. Originality/value - – The results show that since the regulation of uncovered CDS in the EU has been enacted, the sovereign CDS market is stable and less volatile. Based on the theory about speculation on uncovered sovereign CDS by betting on the reference entity’s default, the introduction of Regulation (EU) No. 236/2012 appears to be an appropriate measure to stabilize markets and reduce speculation on sovereign defaults.

Keywords: Financial crisis; Credit default swaps; Financial regulation; European financial reforms; Market stability (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) ... RePEc&WT.mc_id=RePEc (text/html)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
http://emeraldgroupp ... /journals.htm?id=jrf

Access Statistics for this article

Journal of Risk Finance is currently edited by Bonnie Buchanan

More articles in Journal of Risk Finance from Emerald Group Publishing
Series data maintained by Virginia Chapman ().

Page updated 2017-09-29
Handle: RePEc:eme:jrfpps:v:16:y:2015:i:4:p:425-443