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The reaction of emerging market credit default swap spreads to sovereign credit rating changes

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  • Ismailescu, Iuliana
  • Kazemi, Hossein
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    Abstract

    This paper examines the effect of sovereign credit rating change announcements on the CDS spreads of the event countries, and their spillover effects on other emerging economies' CDS premiums. We find that positive events have a greater impact on CDS markets in the two-day period surrounding the event, and are more likely to spill over to other emerging countries. Alternatively, CDS markets anticipate negative events, and previous changes in CDS premiums can be used to estimate the probability of a negative credit event. The transmission mechanisms for positive events are the common creditor and competition in trade markets.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 12 (December)
    Pages: 2861-2873

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:12:p:2861-2873

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Credit default swaps Credit ratings Emerging markets Spillover effects Transmission channels;

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