Daily CDS Pricing in Emerging Markets Before and During the Global Financial Crisis

25 Pages Posted: 22 Sep 2011 Last revised: 8 May 2012

See all articles by Ingo Fender

Ingo Fender

Bank for International Settlements (BIS)

Bernd Hayo

University of Marburg - School of Business & Economics

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 8, 2012

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, spillovers

JEL Classification: G14, G15

Suggested Citation

Fender, Ingo and Hayo, Bernd and Neuenkirch, Matthias, Daily CDS Pricing in Emerging Markets Before and During the Global Financial Crisis (May 8, 2012). Available at SSRN: https://ssrn.com/abstract=1932234 or http://dx.doi.org/10.2139/ssrn.1932234

Ingo Fender

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

HOME PAGE: http://www.bis.org

Bernd Hayo

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universitätsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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