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THE LOCAL DETERMINANTS OF EMERGING MARKET SOVEREIGN CDS SPREADS IN THE CONTEXT OF THE DEBT CRISIS. AN EXPLANATORY STUDY

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Author(s): Sorin Gabriel ANTON

Journal: Scientific Annals of the Alexandru Ioan Cuza University of Iasi : Economic Sciences Series
ISSN 0379-7864

Volume: 2011;
Issue: LVIII;
Start page: 41;
Date: 2011;
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Keywords: sovereign credit default swaps | emerging markets | risk measure | sovereign risk | sovereign debt crisis.

ABSTRACT
The aim of the paper is to explain the determinants of emerging market sovereign CDS spreads in the light of European debt crisis. There are two important types of factors that determined the evolution of sovereign CDS spreads: global, which equally affected all emerging markets and country-specific factors, which reflect the economic fundamentals of the countries. We use data on five-year sovereign CDS spreads for selected Eastern European countries during the period 2008-2010. In order to examine the spillover effects of sovereign debt crisis on the emerging economies CDS spreads, we introduce in our analysis the evolution of Greece CDS spreads for the same period. We find that changes in the sovereign CDS spreads of CEE countries are (jointly) determined by the investors risk appetite, economic fundamentals, spillover effect, and rating downgrade.
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