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Long-Memory in Volatilities of CDS Spreads: Evidences from the Emerging Markets

Author

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  • Samet Günay

    () (American University of the Middle East, Kuwait.)

  • Yanlin Shi

    () (The Australian National University, Canberra, Australia.)

Abstract

In this study, we analyze the long-memory dependency in volatility of CDS spreads of four emerging markets (Turkey, Russia, South Africa, and Brazil) from 2001 to 2014. Preliminary evidence from Detrended Fluctuations Analysis (DFA) suggests the existence of long memory in all markets. We then use the fractionally integrated generalized autoregressive conditional heteroskedasticity (FIGARCH) model to estimate the magnitudes of the long-memory parameter. Following the information of modified ICSS test, the Adaptive FIGARCH (A-FIGARCH) and the Time-Varying FIGARCH (TV-FIGARCH) are also employed to control for the potential effects of structural breaks. The results are generally robust with those obtained from the FIGARCH model. The significant long-memory suggests that the Efficient Market Hypothesis (EMH) may not hold for the CDS spreads of those four countries.

Suggested Citation

  • Samet Günay & Yanlin Shi, 2016. "Long-Memory in Volatilities of CDS Spreads: Evidences from the Emerging Markets," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 122-137, March.
  • Handle: RePEc:rjr:romjef:v::y:2016:i:1:p:122-137
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    References listed on IDEAS

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    Cited by:

    1. Saker Sabkha & Christian De Peretti & Dorra Hmaied, 2017. "The Credit Default Swap market contagion during recent crises: International evidence," Working Papers hal-01572510, HAL.
    2. Saker Sabkha & Christian De Peretti & Dorra Hmaied, 2018. "The Credit Default Swap market contagion during recent crises: International evidence," Post-Print hal-01572510, HAL.

    More about this item

    Keywords

    long-memory; emerging markets; CDS spreads; efficient market hypothesis;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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