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Corporate CDS spreads from the Eurozone crisis to COVID-19 pandemic: A Bayesian Markov switching model

Author

Listed:
  • Giacomo Bulfone

    (University Ca' Foscari of Venice, Italy)

  • Roberto Casarin

    (University Ca' Foscari of Venice, Italy)

  • Francesco Ravazzolo

    (Free University of Bozen-Bolzano, Italy; BI Norwegian Business School, Norway; Rimini Centre for Economic Analysis)

Abstract

This paper investigates the determinants of the European iTraxx corporate CDS index considering a large set of explanatory variables within a Markov switching model framework. It applies a large set of financial and economic variables and compares linear, two, three and four-regimes models in a sample post-subprime financial crisis up to the COVID-19 pandemic. Results indicate that more than two regimes are significant to model CDS spreads, and the four-regime model is the preferred one. The fourth regime activated during the COVID-19 pandemic and also in high volatility periods. The impact of the covariates changes across regimes.

Suggested Citation

  • Giacomo Bulfone & Roberto Casarin & Francesco Ravazzolo, 2021. "Corporate CDS spreads from the Eurozone crisis to COVID-19 pandemic: A Bayesian Markov switching model," Working Paper series 21-09, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:21-09
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate CDS index; Markov switching; Bayesian econometrics;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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