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SOVEREIGN CREDIT RISK and CREDIT DEFAULT SWAP SPREAD REFLECTIONS

Yıl 2013, Cilt: 1 Sayı: 2, 122 - 145, 07.07.2015
https://doi.org/10.18825/iremjournal.109065

Öz

The already experienced turbulence in the global financial system has focused the attentions of market participants to especially sovereign risk; its major determinants, systematic nature as well as its contagion potential. In this study, the direction of the analysis of the sovereign risk is within the framework of the credit default swap (cds) transactions. The sovereign risk can also be elaborated by using the bond spreads of the sovereign but the latter is also driven by factors other than the sovereign risk such as the interest rate movements, supply conditions, and liquidity.

The already available economical and financial data provides invaluable opportunity to analyze the sovereign risk anticipation of the financial markets as it incorporates the valuation of cds in real crisis times of 2008 and 2009 and 2011-first half of 2012 as well as the before and after economic and financial data of the selected countries namely Brazil, Turkey, Russia, Korea, Greece and Spain.

The relationship between the global financial variables and cds spreads reveals the fact that the risk appetite in the global financial market affects the credit risk perception and consequently cds spreads regardless of the employed indicator of the risk appetite. Specifically, it is also determined that domestic economic situation has significant effects on cds spreads (excluding Greece who experienced considerable turmoil in its economical and financial position), the local variables explain more than 75 percent of the cds spread level and this ratio increases to more than 80 percent when four emerging market countries are referred.

Kaynakça

  • Ang, A.& Longstaff, F.A.2011. Systemic Sovereign Credit Risk: Lessons from the U,S, and Europe. NBER Working Paper No.16982, National Bureau of Economic Research, Cambridge,MA.
  • Augustin, P.& Tedongap, R.2011.Common Factors and Commonality in Sovereign CDS Spreads: A consumption-based explanation. Banco de España – Bank of Canada Workshop on Advances in Fixed Income Modeling, Madrid.
  • Baek, I., Bandopadhyaya, A, & Chan, D. 2005. Determinants of market-assessed sovereign risk: Economic fundamentals or market risk. Journal of International Money & Finance, 24: 533–548.
  • Cantor, R, & Packer F.1996. Determinants and impact of sovereign credit ratings. Economic Policy Review, 2(2): 37-58.
  • Catão, L, & Sutton, B.2002. Sovereign Defaults the Role of Volatility. International Monetary Fund Working Paper NO.149:16-18,
  • Cho, D.2010. Responses of the Korean Economy to the Global Crisis:Another Currency Crisis? Paper presented at 2010 EWC/KDI Conference on Global Economic Crisis: Impacts, Transmission, and Recovery in Honolulu, Hawaii.
  • Cochrane,J. 1991. A critique of the application of unit root tests. Journal of Economic Dynamics and Control, 15(2): 275-284.
  • Coronado M., Corzo, M. T. & Lazcano,L. 2012. A Case for Europe: The Relationship between Sovereign CDs and Stock Indexes. Frontiers in Finance and Economics, 9(2), 32-63.
  • Fama, E.F.1981. Stock Returns, Real Activity and Money. The American Economic Review, 71(4):545-565.
  • Fontana, A, & Scheicher, M. 2010. An analysis of euro area sovereign CDS. European Central Bank Working Paper Series, no.1271.
  • Garcia, M, & Rigobon, R. 2005. A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an Application to Brazilian Data. In F. Giavazzi, I. Goldfajn, & S.Herrera (Eds,), Inflation Targeting, Debt and the Brazilian experience 1999 to 2003, 53-75, MIT Press.
  • Garcia-Herrero, A & Ortiz A. 2007. The role of global risk aversion in explaining Latin American sovereign spreads. Economia, 7(1), 125-155.
  • Georgievska, A, Georgievska, L., Stojanovic, A.& Todorovic, N. 2008. Sovereign rescheduling probabilities in emerging markets: a comparison with credit rating agencies' ratings. Journal of Applied Statistics, 35: 1031-1051,
  • Hilscher, J. & Nosbusch, Y. 2010. Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt. Review of Finance ,14: 235–262
  • Kamin, S.& von Kleist, K. 1999. The Evolution and Determinants of Emerging Market Credit Spreads in the 1990s. Working paper No, 68, Bank for International Settlements,
  • Longstaff, F.A., Lasse, J.P., Pedersen, H. & Singleton, K.J. 2011. How Sovereign Is Sovereign Credit Risk? American Economic Journal, 3: 75–103.
  • Mauro, P., Sussman, N. & Yafeh, Y. 2002. Emerging market spreads: then versus now. Quarterly Journal of Economics, May :695-703,
  • McGuire P.& Schrijvers, M. A.2003. Common factors in emerging market spreads. BIS Quarterly Review, 32: 65-78
  • Mellios, C., & Paget-Blanc E. 2006. The impact of macro-economic variables on the sovereign CDS spreads of the Eurozone countries : Examining the determinants of credit default swaps. Journal of Finance, 12 (4): 363-382.
  • Pan, J. & Singleton, K. J. 2008. Default and recovery implicit in the term structure of sovereign cds spreads. The Journal of Finance, 63(5): 2345-2384.
  • Reinhart, C, & Rogoff, K. 2008. This time is different: Eight Centuries of Financial Folly. New Jersey: Princeton University Press.
  • Remolona, E., Scatigna, M. & Wu, E. 2008). The dynamic pricing of sovereign risk in emerging markets: Fundamentals and risk aversion. Journal of Fixed Income, 17(4): 57-71.
  • Sturzenegger, F. & Zettelmeyer,J. 2007. Debt Defaults and Lessons from a Decade of Crises. MIT Press:9-10.
  • Weigel,D.& Gemmill, G.2006. What Drives Credit Risk in Emerging Markets? The Roles of Country Fundamentals and Market Co-Movements. Journal of International Money and Finance, 25: 476–502.
  • Westphalen, M. 2001. The determinants of sovereign bond credit spreads changes. Working paper, University of Lausanne.
Yıl 2013, Cilt: 1 Sayı: 2, 122 - 145, 07.07.2015
https://doi.org/10.18825/iremjournal.109065

Öz

Kaynakça

  • Ang, A.& Longstaff, F.A.2011. Systemic Sovereign Credit Risk: Lessons from the U,S, and Europe. NBER Working Paper No.16982, National Bureau of Economic Research, Cambridge,MA.
  • Augustin, P.& Tedongap, R.2011.Common Factors and Commonality in Sovereign CDS Spreads: A consumption-based explanation. Banco de España – Bank of Canada Workshop on Advances in Fixed Income Modeling, Madrid.
  • Baek, I., Bandopadhyaya, A, & Chan, D. 2005. Determinants of market-assessed sovereign risk: Economic fundamentals or market risk. Journal of International Money & Finance, 24: 533–548.
  • Cantor, R, & Packer F.1996. Determinants and impact of sovereign credit ratings. Economic Policy Review, 2(2): 37-58.
  • Catão, L, & Sutton, B.2002. Sovereign Defaults the Role of Volatility. International Monetary Fund Working Paper NO.149:16-18,
  • Cho, D.2010. Responses of the Korean Economy to the Global Crisis:Another Currency Crisis? Paper presented at 2010 EWC/KDI Conference on Global Economic Crisis: Impacts, Transmission, and Recovery in Honolulu, Hawaii.
  • Cochrane,J. 1991. A critique of the application of unit root tests. Journal of Economic Dynamics and Control, 15(2): 275-284.
  • Coronado M., Corzo, M. T. & Lazcano,L. 2012. A Case for Europe: The Relationship between Sovereign CDs and Stock Indexes. Frontiers in Finance and Economics, 9(2), 32-63.
  • Fama, E.F.1981. Stock Returns, Real Activity and Money. The American Economic Review, 71(4):545-565.
  • Fontana, A, & Scheicher, M. 2010. An analysis of euro area sovereign CDS. European Central Bank Working Paper Series, no.1271.
  • Garcia, M, & Rigobon, R. 2005. A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an Application to Brazilian Data. In F. Giavazzi, I. Goldfajn, & S.Herrera (Eds,), Inflation Targeting, Debt and the Brazilian experience 1999 to 2003, 53-75, MIT Press.
  • Garcia-Herrero, A & Ortiz A. 2007. The role of global risk aversion in explaining Latin American sovereign spreads. Economia, 7(1), 125-155.
  • Georgievska, A, Georgievska, L., Stojanovic, A.& Todorovic, N. 2008. Sovereign rescheduling probabilities in emerging markets: a comparison with credit rating agencies' ratings. Journal of Applied Statistics, 35: 1031-1051,
  • Hilscher, J. & Nosbusch, Y. 2010. Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt. Review of Finance ,14: 235–262
  • Kamin, S.& von Kleist, K. 1999. The Evolution and Determinants of Emerging Market Credit Spreads in the 1990s. Working paper No, 68, Bank for International Settlements,
  • Longstaff, F.A., Lasse, J.P., Pedersen, H. & Singleton, K.J. 2011. How Sovereign Is Sovereign Credit Risk? American Economic Journal, 3: 75–103.
  • Mauro, P., Sussman, N. & Yafeh, Y. 2002. Emerging market spreads: then versus now. Quarterly Journal of Economics, May :695-703,
  • McGuire P.& Schrijvers, M. A.2003. Common factors in emerging market spreads. BIS Quarterly Review, 32: 65-78
  • Mellios, C., & Paget-Blanc E. 2006. The impact of macro-economic variables on the sovereign CDS spreads of the Eurozone countries : Examining the determinants of credit default swaps. Journal of Finance, 12 (4): 363-382.
  • Pan, J. & Singleton, K. J. 2008. Default and recovery implicit in the term structure of sovereign cds spreads. The Journal of Finance, 63(5): 2345-2384.
  • Reinhart, C, & Rogoff, K. 2008. This time is different: Eight Centuries of Financial Folly. New Jersey: Princeton University Press.
  • Remolona, E., Scatigna, M. & Wu, E. 2008). The dynamic pricing of sovereign risk in emerging markets: Fundamentals and risk aversion. Journal of Fixed Income, 17(4): 57-71.
  • Sturzenegger, F. & Zettelmeyer,J. 2007. Debt Defaults and Lessons from a Decade of Crises. MIT Press:9-10.
  • Weigel,D.& Gemmill, G.2006. What Drives Credit Risk in Emerging Markets? The Roles of Country Fundamentals and Market Co-Movements. Journal of International Money and Finance, 25: 476–502.
  • Westphalen, M. 2001. The determinants of sovereign bond credit spreads changes. Working paper, University of Lausanne.
Toplam 25 adet kaynakça vardır.

Ayrıntılar

Birincil Dil İngilizce
Bölüm MAKALELER
Yazarlar

Neslihan Turguttopbaş

Yayımlanma Tarihi 7 Temmuz 2015
Gönderilme Tarihi 7 Temmuz 2015
Yayımlandığı Sayı Yıl 2013 Cilt: 1 Sayı: 2

Kaynak Göster

APA Turguttopbaş, N. (2015). SOVEREIGN CREDIT RISK and CREDIT DEFAULT SWAP SPREAD REFLECTIONS. International Review of Economics and Management, 1(2), 122-145. https://doi.org/10.18825/iremjournal.109065