The Effect of Credit Rating Events on the Emerging CDS Market

Laura Ballester () and Ana González-Urteaga ()
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Laura Ballester: University of Valencia
Ana González-Urteaga: Public University of Navarre

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2017, pp 17-28 from Springer

Abstract: Abstract We document the cross-border spillover impact of S&P sovereign credit rating events on sovereign CDS using an extensive sample of emerging economies. First, we find on average a competition (imitation) effect of downgrades (upgrades) among emerging portfolios. Results confirms that non-event portfolios responds positively to credit deteriorations in terms of an improvement in sovereign credit risk. Second, the sovereign credit risk of non-event countries within the same portfolio benefit (suffer) from downgrades (upgrades). As expected, this implies a competition effect in terms of sovereign credit risk. Moreover, we find that downgrades are more likely to spill over into other emerging markets than upgrades, and they do so with a greater impact. Finally, there is enough evidence of cross-over effects to support the importance of this study.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-50234-2_2

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DOI: 10.1007/978-3-319-50234-2_2

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