Advanced Search
MyIDEAS: Login to save this paper or follow this series

Extracting the sovereigns´ CDS market hierarchy: a correlation-filtering approach

Contents:

Author Info

  • Carlos Eduardo Léon Rincón

    ()

  • Karen Juliet Leiton

    ()

  • Jhonatan Pérez Villalobos

    ()

Abstract

Since correlation may be interpreted as a measure of the influence across time-series, it may be conveniently mapped into a distance and into a weighted adjacency matrix. Based on such matrix, network theory has attempted to filter out the noise in correlation matrices by extracting the dominant hierarchy (i.e. the strongest linear-dependence signals) within time-series. The aim of this brief paper is to find the current hierarchy in the sovereigns´ CDS market after the structural shift caused by the failure of Lehman Brothers. Thus, based on two different correlation-into-distance mapping techniques and a minimal spanning tree-based correlation-filtering methodology on 36 sovereign CDS spread time-series, the target is to identify which sovereigns are providing the strongest -less noisy- and most informative signals. The resulting sovereigns´ CDS market hierarchy agrees with prior findings of Gilmore et al. (2010) regarding sovereigns´ bonds market, such as the importance of geographical clustering and the idiosyncratic nature of Japan and United States. Additionally, results (i) confirm that a small set of common factors affect the entire system; (ii) identify the relevance of credit rating clustering; (iii) identify Russia, Turkey and Brazil as regional benchmarks; (iv) suggest that lower-medium grade rated sovereigns are the most influential, but also the most prone to contagion; and (v) suggest the existence of a Latin American common factor". "

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.banrep.gov.co/docum/ftp/be_766.pdf
Download Restriction: no

Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 010749.

as in new window
Length: 26
Date of creation: 22 May 2013
Date of revision:
Handle: RePEc:col:000094:010749

Contact details of provider:

Related research

Keywords: correlation; minimal spanning tree; correlation-filtering; sovereign; credit default swap;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Coudert, V. & Gex, M., 2010. "Credit default swap and bond markets: which leads the other?," Financial Stability Review, Banque de France, issue 14, pages 161-167, July.
  2. Carlos León & Karen Leiton & Alejandro Reveiz, 2012. "Investment Horizon Dependent CAPM: Adjusting beta for long-term dependence," BORRADORES DE ECONOMIA 009909, BANCO DE LA REPÚBLICA.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:col:000094:010749. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Norma Judith Paternina).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.