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Sovereign Credit Ratings, The Macroeconomy And Credit Default Swap Spreads

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  • Yang Liu
  • BRUCE MORLEY

Abstract

ABSTRACT:The aim of this study is to determine the main factors affecting sovereign credit default swap(CDS) spreads, with particular emphasis on the relationship between the credit rating scores andthe CDS spreads. Other macroeconomic affects are also included in the estimation which usespanel data from the main EU countries, USA and Japan. The results indicate there is littleevidence to show any relationship between the credit ratings and the sovereign CDS spreads,and the main drivers of sovereign CDS spreads are macroeconomic fundamentals which reflectthe ‘health’ of the economy.

Suggested Citation

  • Yang Liu & BRUCE MORLEY, 2013. "Sovereign Credit Ratings, The Macroeconomy And Credit Default Swap Spreads," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 56(3-4), pages 335-348.
    • Handle: RePEc:bxr:bxrceb:2013/174860
    Note: Special Issue30th Symposium on Money, Banking and FinanceGuest editors: Christian Aubin, Noëlle Duport andDaniel Goyeau
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    References listed on IDEAS

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    1. Beirne, John & Fratzscher, Marcel, 2013. "The pricing of sovereign risk and contagion during the European sovereign debt crisis," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 60-82.
    2. Barrell, Ray & Choy, Amanda & Holland, Dawn & Riley, Rebecca, 2005. "The Sterling Effective Exchange Rate and Other Measures of UK Competitiveness," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191, pages 54-63, January.
    3. Bonfim, Diana, 2009. "Credit risk drivers: Evaluating the contribution of firm level information and of macroeconomic dynamics," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 281-299, February.
    4. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    5. Afonso, António & Furceri, Davide & Gomes, Pedro, 2012. "Sovereign credit ratings and financial markets linkages: Application to European data," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 606-638.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The "bucketing" problem in financial markets
      by noreply@blogger.com (Gulzar Natarajan) in Urbanomics on 2017-06-23 01:54:00

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    Cited by:

    1. Mustafa Tevfik KARTAL, 2022. "The Role of Macroeconomic and Market Indicators in Explaining Sovereign Credit Default Swaps (CDS) Spread Changes: Evidence from Türkiye," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 145-164, April.

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