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Sovereign Credit Default Swaps and the Macroeconomy

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  • Liu, Yang
  • Morley, Bruce

Abstract

The aim of this study is to determine whether the domestic interest rate or the exchange rate affect the sovereign credit default swaps. To date most studies on corporate CDS markets have emphasised the importance of domestic factors such as the interest rate. But with the sovereign CDS market, the international environment also needs to be incorporated into any analysis. Using a VAR and Granger non-causality tests, the results suggest that it is the exchange rate that has the most important effect on sovereign CDS markets, with domestic interest rates having only a marginal effect.

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Paper provided by University of Bath, Department of Economics in its series Department of Economics Working Papers with number 24071.

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Date of creation: 2011
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Handle: RePEc:eid:wpaper:24071

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  1. Granger, Clive W. J. & Huangb, Bwo-Nung & Yang, Chin-Wei, 2000. "A bivariate causality between stock prices and exchange rates: evidence from recent Asianflu," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(3), pages 337-354.
  2. Skinner, Frank S. & Townend, Timothy G., 2002. "An empirical analysis of credit default swaps," International Review of Financial Analysis, Elsevier, vol. 11(3), pages 297-309.
  3. Fabozzi, Frank J. & Cheng, Xiaolin & Chen, Ren-Raw, 2007. "Exploring the components of credit risk in credit default swaps," Finance Research Letters, Elsevier, vol. 4(1), pages 10-18, March.
  4. Frank Skinner & Antonio Diaz, 2002. "An Empirical Study of Credit Default Swaps," ICMA Centre Discussion Papers in Finance icma-dp2003-04, Henley Business School, Reading University, revised Jan 2003.
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