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Daily CDS pricing in emerging markets before and during the global financial crisis

Ingo Fender, Bernd Hayo and Matthias Neuenkirch ()

No 201139, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: In this paper, we study the determinants of daily spreads for emerging market sovereign credit default swaps (CDS) over the period April 2002–December 2011. Using GARCH models, we find, first, that daily CDS spreads for emerging market sovereigns are more related to global and regional risk premia than to country-specific risk factors. This result is particularly evident during the second subsample (August 2007–December 2011), where neither macroeconomic variables nor country ratings significantly explain CDS spread changes. Second, measures of US bond, equity, and CDX High Yield returns as well as emerging market credit returns turn out to be the most dominant drivers of CDS spread changes. Finally, our analysis suggests that CDS spreads are more strongly influenced by international spillover effects during periods of market stress.

Keywords: Credit default swaps; emerging markets; financial crisis; spillover (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2011
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