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The Dynamics of Sovereign Credit Default Swaps and the Evolution of the Financial Crisis in Selected Central European Economies

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  • Agata Kliber

    () (Poznan University of Economics)

Abstract

In this paper, we analyze the dynamics of selected sovereign Central European credit default swap (hereinafter referred to as “sovereign CDS” or “sCDS”) prices and investigate regional and European interdependencies among the economies under examination during the period 2008–2011. We focus our attention on the CDS market in Poland, the Czech Republic and Hungary, which are markets that researchers usually put into one “basket”. The aim of our research is to verify to what extent the growth of the CDS premia in these countries during the period under study could be explained by the Hungarian and Greek crises. We apply stochastic volatility models with dynamic conditional correlation, including proxies for the Greek and Hungarian crises, in variance and correlation equations. On the basis of the obtained results, we conclude that regional dependencies between the Polish and Hungarian CDS prices are the strongest among all the analyzed pairs of countries. Both the Hungarian and Greek crises caused a rise in volatility in Central European countries. However, the shocks coming from the Greek market contributed to correlation growth between the Polish and Hungarian markets and, to a lesser extent, to the correlation of the Hungarian and Czech markets.

Suggested Citation

  • Agata Kliber, 2014. "The Dynamics of Sovereign Credit Default Swaps and the Evolution of the Financial Crisis in Selected Central European Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(4), pages 330-350, September.
  • Handle: RePEc:fau:fauart:v:64:y:2014:i:4:p:330-350
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    References listed on IDEAS

    as
    1. Agata Kliber, 2011. "Sovereign CDS Instruments in Central Europe – Linkages and Interdependence," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 11, pages 111-128.
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    Citations

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    Cited by:

    1. Kliber, Agata & Płuciennik, Piotr, 2017. "Euro or not? Vulnerability of Czech and Slovak economies to regional and international turmoil," Economic Modelling, Elsevier, vol. 60(C), pages 313-323.
    2. Agata Kliber, 2016. "The leverage effect puzzle: the case of European sovereign credit default swap market," Review of Derivatives Research, Springer, vol. 19(3), pages 217-235, October.
    3. repec:eee:reveco:v:54:y:2018:i:c:p:123-142 is not listed on IDEAS

    More about this item

    Keywords

    sovereign CDS; government bonds; multivariate stochastic volatility; sunspot;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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