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Default correlation at the sovereign level: evidence from some Latin American markets

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  • Yi-Hsuan Chen
  • Kehluh Wang
  • Anthony Tu

Abstract

Using the eruption of Argentina debt crisis in 2001 as a natural experiment, we investigated the correlated default at the sovereign level for some Latin American countries. Daily closing market quotes for sovereign Credit Default Swaps (CDS) of Argentina, Brazil, Mexico and Venezuela were obtained from CreditTrade database. Using copula approach, we observed increased dependences among sovereign CDS markets during the crisis period. Their dependence structures were found to be asymmetric. Moreover, the degree of credit contagion was related to the creditworthiness of the country. This study also discussed the implications of these findings for policymakers.

Suggested Citation

  • Yi-Hsuan Chen & Kehluh Wang & Anthony Tu, 2011. "Default correlation at the sovereign level: evidence from some Latin American markets," Applied Economics, Taylor & Francis Journals, vol. 43(11), pages 1399-1411.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:11:p:1399-1411
    DOI: 10.1080/00036840802600467
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    Cited by:

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    2. Chien-Lung Hsu & Chun-Hao Chiang, 2015. "The financial crisis research: a bibliometric analysis," Scientometrics, Springer;Akadémiai Kiadó, vol. 105(1), pages 161-177, October.
    3. Michał Adam, 2013. "Spillovers and contagion in the sovereign CDS market," Bank i Kredyt, Narodowy Bank Polski, vol. 44(6), pages 571-604.
    4. Silvapulle, Param & Fenech, Jean Pierre & Thomas, Alice & Brooks, Rob, 2016. "Determinants of sovereign bond yield spreads and contagion in the peripheral EU countries," Economic Modelling, Elsevier, vol. 58(C), pages 83-92.
    5. Hassan, Kamrul & Hoque, Ariful & Gasbarro, Dominic, 2017. "Sovereign default risk linkage: Implication for portfolio diversification," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 1-16.
    6. Wei, Li & Yuan, Zhongyi, 2016. "The loss given default of a low-default portfolio with weak contagion," Insurance: Mathematics and Economics, Elsevier, vol. 66(C), pages 113-123.

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