The Co-Movement of Sovereign Credit Default Swaps and Bonds, and Stock Markets in Europe
36 Pages Posted: 6 Feb 2012 Last revised: 11 Mar 2012
Date Written: February 3, 2012
In this paper we investigate the relationship between sovereign CDSs and Bonds, and Equity markets for 13 European countries during the period 2008-2010. We confirm the leading role incorporating new information of Equity markets during 2008-2009, but we find large evidence supporting that during 2010 sovereign CDS markets took over this role and led the process. When focusing on the sovereign CDS markets of the 13 countries and the co-movement of these markets we find that during years 2007-2009 the Spanish CDSs lead the price discovery process. During year 2010, the German CDS also took an important leading role.
Keywords: sovereign credit risk, sovereign credit derivatives, price discovery, stock markets, lead-lag relationships
JEL Classification: G15, G14, G20
Suggested Citation: Suggested Citation