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The chicken or the egg? A note on the dynamic interrelation between government bond spreads and credit default swaps

  • Delis, Manthos D
  • Mylonidis, Nikolaos

This note provides the first empirical assessment of the dynamic interrelation between government bond spreads and their associated credit default swaps (CDS). We use data for the Southern European countries (Greece, Italy, Portugal and Spain) that found themselves with a problematic public sector in the dawn of the recent financial distress. We find that CDS prices Granger-cause government bond spreads after the eruption of the 2007 subprime crisis. Feedback causality is detected during periods of financial and economic turmoil, thereby indicating that high risk aversion tends to perplex the transmission mechanism between CDS prices and government bond spreads.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25270.

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Date of creation: 20 Sep 2010
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Handle: RePEc:pra:mprapa:25270
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  10. Alois Geyer & Stephan Kossmeier & Stefan Pichler, 2004. "Measuring Systematic Risk in EMU Government Yield Spreads," Review of Finance, Springer, vol. 8(2), pages 171-197.
  11. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
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