The Effects of US Macroeconomic Surprises on the Term Structure of Emerging-market Sovereign Credit Default Swaps

54 Pages Posted: 18 Feb 2021

See all articles by Chi Yin

Chi Yin

National Sun Yat-sen University

Junmao Chiu

National Sun Yat-sen University-Department of Finance

Yu-Jen Hsiao

National Dong Hwa University

建文 湯

affiliation not provided to SSRN

Wei-Che Tsai

Oregon State University; National Sun Yat-sen University - Department of Finance

Date Written: January 4, 2021

Abstract

Our primary aim in this study is to examine whether US macroeconomic surprises affect the slope of the term structure of national ‘sovereign credit default swap’ (SCDS) spreads in the emerging markets, with our empirical results revealing that positive (negative) US macroeconomic surprises are likely to reduce (increase) the term structure slope of SCDS spreads in the emerging countries. We find that a 1% increase in the slope value of SCDS term structures forecasts a reduction in annual GDP growth at an average rate of 0.0035%, with the slope values in the emerging markets being positively related to future market returns over one-, three- and six-month horizons. Following adjustment by the three global factors of Fama-French (1993), a monthly long-short rebalancing portfolio based upon SCDS slopes in the emerging markets is found to generate an average monthly return of 1.60%. Our results provide general support for the future informational role played by SCDS slopes for national economies within the emerging markets.

Keywords: Credit default swaps, Term structur, Spillover effect, Financial crisis.

JEL Classification: F30; G15

Suggested Citation

Yin, Chi and Chiu, Junmao and Hsiao, Yu-Jen and 湯, 建文 and Tsai, Wei-Che, The Effects of US Macroeconomic Surprises on the Term Structure of Emerging-market Sovereign Credit Default Swaps (January 4, 2021). Available at SSRN: https://ssrn.com/abstract=3759530 or http://dx.doi.org/10.2139/ssrn.3759530

Chi Yin

National Sun Yat-sen University ( email )

70 Lien-hai Rd.
Kaohsiung, 80743
Taiwan

Junmao Chiu

National Sun Yat-sen University-Department of Finance ( email )

70 Lien-Hai Road
Kaohsiung
Taiwan
+886-7-5252000 (Phone)
34638800 (Fax)

Yu-Jen Hsiao

National Dong Hwa University ( email )

Taiwan

建文 湯

affiliation not provided to SSRN

Wei-Che Tsai (Contact Author)

Oregon State University ( email )

Corvallis, OR 97331
United States

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

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