Sovereign Credit Default Swaps, Sovereign Debt and Volatility Transmission Across Emerging Markets

30 Pages Posted: 11 Feb 2008

See all articles by Byoung Uk Kang

Byoung Uk Kang

The Hong Kong Polytechnic University - School of Accounting and Finance

Francis Haeuck In

Monash University - Department of Accounting; Financial Research Network (FIRN)

Tong Suk Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: August 12, 2007

Abstract

This paper uses daily sovereign credit default swap (CDS) prices to investigate how the credit risks of major Latin American reference entities are interlinked. Our empirical findings suggest that the underlying creditworthiness of nations is reflected in the direction of Granger causality and volatility transmission, and in the degree of volatility persistence. These findings are robust when derived from Latin American government bond credit spreads, yet some important differences emerge which indicate that the sovereign CDS market provides a better forum for diversification of credit risk exposure than does the bond market.

Keywords: Credit default swap, Credit Spread, Emerging market, International linkages, Price discovery

JEL Classification: C32, F34, G14, G15

Suggested Citation

Kang, Byoung Uk and In, Francis Haeuck and Kim, Tong Suk, Sovereign Credit Default Swaps, Sovereign Debt and Volatility Transmission Across Emerging Markets (August 12, 2007). Available at SSRN: https://ssrn.com/abstract=1090408 or http://dx.doi.org/10.2139/ssrn.1090408

Byoung Uk Kang (Contact Author)

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

School of Accounting and Finance
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
852-2766-7085 (Phone)

HOME PAGE: http://af.polyu.edu.hk/people/academic-staff/dr-byoung-uk-kang/

Francis Haeuck In

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia
+61 3 9905 1561 (Phone)
+61 3 9905 5475 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Tong Suk Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

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