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Dynamic interdependence of sovereign credit default swaps in BRICS and MIST countries

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  • Maria E. de Boyrie
  • Ivelina Pavlova

Abstract

This article examines the interactions of emerging markets sovereign credit default swaps (CDS). Using a generalized vector autoregressive framework and principal component analysis, we find significant spillover effects within the two groups of emerging markets under study. Using the principal component analysis, we show that global financial market factors are important drivers of BRICS and MIST sovereign CDS spreads variability. Focusing on the forecast error variance decomposition, most of the spillover effects are documented among the emerging markets CDS. Brazil and Mexico contribute the largest net directional spillovers to the other emerging markets studied. Highlights : There exist significant CDS spillover effects for MIST and BRICS countries. Mexico dominates the spillover effects within the MIST group while Brazil dominates the spillover effects within the BRICS group. As determined by principal component analysis, global financial market factors are important drivers of BRICS and MIST sovereign CDS spreads variability. There exists a relatively small net directional spillover from global financial market factors to the countries under study; however, the total spillover is time-varying. A large proportion of the forecast error variance in the markets studied comes from spillovers.

Suggested Citation

  • Maria E. de Boyrie & Ivelina Pavlova, 2016. "Dynamic interdependence of sovereign credit default swaps in BRICS and MIST countries," Applied Economics, Taylor & Francis Journals, vol. 48(7), pages 563-575, February.
  • Handle: RePEc:taf:applec:v:48:y:2016:i:7:p:563-575
    DOI: 10.1080/00036846.2015.1083089
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    References listed on IDEAS

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    Cited by:

    1. Hassan, Kamrul & Hoque, Ariful & Gasbarro, Dominic, 2017. "Sovereign default risk linkage: Implication for portfolio diversification," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 1-16.
    2. Gonca Oguz Gok & Mehmet Sahin Gok, 2016. "Emerging Economies: Comparative Analysis of MIST and IBSA Countries," Eurasian Journal of Social Sciences, Eurasian Publications, vol. 4(2), pages 1-13.

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