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

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 t...

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Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 39-2011)
Main Authors: Fender, Ingo, Hayo, Bernd, Neuenkirch, Matthias
Format: Work
Language:English
Published: Philipps-Universität Marburg 2011
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Online Access:PDF Full Text
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Summary: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.
Physical Description:25 Pages
ISSN:1867-3678
DOI:10.17192/es2024.0104