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Greek sovereign credit market dynamics: Credit Default Swap and bond spreads' linkages

Author

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  • Ioannis A. Tampakoudis
  • Demetres N. Subeniotis
  • Ioannis G. Kroustalis

Abstract

This study investigates the dynamic relationship between the Greek sovereign Credit Default Swap (CDS) and bond markets, using daily CDS and bond spreads from January 2006 to December 2010. We attempt to enlighten the conflicting conclusions of previous literature referring to sovereign credit market dynamics. The co-integration analysis suggests the existence of a long-run equilibrium relationship between the two markets. Concerning the short run, estimating a Vector Error Correction Model (VECM), we find that the bond market adjusts faster than the CDS market towards long run equilibrium. This result underlines the leading role of the Greek sovereign CDS market in the price discovery process.

Suggested Citation

  • Ioannis A. Tampakoudis & Demetres N. Subeniotis & Ioannis G. Kroustalis, 2012. "Greek sovereign credit market dynamics: Credit Default Swap and bond spreads' linkages," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 5(3/4), pages 268-280.
    • Handle: RePEc:ids:ijtrgm:v:5:y:2012:i:3/4:p:268-280
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    Cited by:

    1. Wang, Alan T. & Yang, Sheng-Yung & Yang, Nien-Tzu, 2013. "Information transmission between sovereign debt CDS and other financial factors – The case of Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 586-601.

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