On the informational market efficiency of the worldwide sovereign credit default swaps

Saker Sabkha (), Christian de Peretti () and Dorra Hmaied
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Saker Sabkha: LEGO - Laboratoire d'Economie et de Gestion de l'Ouest - UBS - Université de Bretagne Sud - UBO - Université de Brest - IMT - Institut Mines-Télécom [Paris] - IBSHS - Institut Brestois des Sciences de l'Homme et de la Société - UBO - Université de Brest - UBL - Université Bretagne Loire - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris]
Christian de Peretti: ECL - École Centrale de Lyon - Université de Lyon, LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Dorra Hmaied: IHEC - Institut des hautes études commerciales (Carthage, Tunisie) - UCAR - Université de Carthage (Tunisie)

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Abstract: In this globalizing world, the search for predictions of asset returns across financial markets has challenged practitioners and academics for decades. Aware of this issue importance in developing investment strategy, we aim in this paper to give new evidence on the efficiency degree of the sovereign CDS markets. The new framework, used in this paper, combining a VECM and a FIGARCH models by a three-step estimation allows us to greatly improve the accuracy of the econometric estimates. Using data from 37 countries all over the world, throughout the period spanning from January 2006 to March 2017, our study provides worldwide evidence rejecting to some extent, conversely to the results of the literature, the randomness of the credit derivative markets. The implication of our results is that speculators can beat the market by predicting CDS performances, especially during crisis periods.

Date: 2019-11-22
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Published in Journal of Asset Management, 2019, 20 (7), pp.581-608. ⟨10.1057/s41260-019-00142-4⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04875516

DOI: 10.1057/s41260-019-00142-4

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