The chicken or the egg? A note on the dynamic interrelation between government bond spreads and credit default swaps
AbstractThis note provides the first empirical assessment of the dynamic interrelation between government bond spreads and their associated credit default swaps (CDS). We use data for the Southern European countries (Greece, Italy, Portugal and Spain) that found themselves with a problematic public sector in the dawn of the recent financial distress. We find that CDS prices Granger-cause government bond spreads after the eruption of the 2007 sub-prime crisis. Feedback causality is detected during periods of financial and economic turmoil, thereby indicating that high risk aversion tends to perplex the transmission mechanism between CDS prices and government bond spreads.
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Bibliographic InfoArticle provided by Elsevier in its journal Finance Research Letters.
Volume (Year): 8 (2011)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/frl
Government bonds Credit default swaps Rolling Granger-causality tests;
Other versions of this item:
- Delis, Manthos D & Mylonidis, Nikolaos, 2010. "The chicken or the egg? A note on the dynamic interrelation between government bond spreads and credit default swaps," MPRA Paper 25270, University Library of Munich, Germany.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G01 - Financial Economics - - General - - - Financial Crises
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