Informace o publikaci

Interactions between sovereign credit default swaps and bonds: The case of EU countries



Rok publikování 2013
Druh Článek ve sborníku
Konference Proceedings of the 31st International Conference Mathematical Methods in Economics 2013
Fakulta / Pracoviště MU

Ekonomicko-správní fakulta

Obor Ekonomie
Klíčová slova credit default swap market; bond market; Granger causality
Přiložené soubory
Popis Credit default swap markets are considered as a leading indicator of the future development of creditworthiness, which can point out the potential situation in economy. The study examines the relationship between sovereign credit default swap and bond spreads of the EU countries in the period before, during and after financial crisis. The aim of the study is to find out if the price discovery process in the credit default swap and bond markets has been changed by financial crisis and continuing debt crisis in short-run. A vector autoregressive model in the context of Granger causality is employed to capture causal relationships between observed credit default swap and bond markets. Model is employed on daily and weekly data. Results can be beneficial for all participants in the financial markets, especially for regulators and investors as a possible indicator of credit risk. This research showed that the role of both markets has changed. We found out that the number of causal relations grew during the financial crisis period and has decreased during the debt crisis period. The credit default swap markets could be comprehended as a potential indicator of increasing credit risk during the period of financial crisis but they cannot be comprehended anymore in the presence.
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