EconPapers    
Economics at your fingertips  
 

Information Flow between Sovereign CDS and Dollar-Yen Currency Option Markets in the Sovereign Debt Crisis of 2009-2011

Cho-Hoi Hui and Tom Fong ()
Additional contact information
Cho-Hoi Hui: Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research

No 402011, Working Papers from Hong Kong Institute for Monetary Research

Abstract: While the US dollar and Japanese yen are considered as safe-haven currencies, both their sovereign credit default swap (CDS) spreads and exchange rate have varied in a wide range since late 2007. This raises the question of interconnectivity between the anticipated sovereign credit risk and the market expectation of the dollar-yen exchange rate. This paper shows evidence of information flow from the sovereign CDS market to the dollar-yen currency option market during the sovereign debt crisis from September 2009 to August 2011 when concerns about sovereign credit risks in the developed economies were triggered. The impact of the US sovereign credit risk on the risk reversal is a separable risk factor in driving the market expectation of the dollar-yen exchange rate after controlling other macro-financial variables. While the Japanese sovereign CDS spread was higher than its US counterpart, its impact on the risk reversal was not significant.

Keywords: Sovereign Risk; Currency Options; Credit Default Swaps; Fiscal Situation (search for similar items in EconPapers)
JEL-codes: F31 G13 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.hkimr.org/uploads/publication/40/ub_ful ... o-40_2011-final-.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/40/ub_full_0_2_306_wp-no-40_2011-final-.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/40/ub_full_0_2_306_wp-no-40_2011-final-.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/40/ub_full_0_2_306_wp-no-40_2011-final-.pdf)

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: https://EconPapers.repec.org/RePEc:hkm:wpaper:402011

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().

 
Page updated 2021-02-20
Handle: RePEc:hkm:wpaper:402011