Information Transmission and Price Discovery in Emerging Sovereign Credit Risk Markets

2007 ◽  
Author(s):  
Mike Bowe ◽  
Asta Klimaviciene ◽  
Alex P. Taylor
Keyword(s):  
Credit Risk ◽  
Information Transmission ◽  
Price Discovery ◽  
Sovereign Credit ◽  
Sovereign Credit Risk

scholarly journals The Evolution of the Lead-lag Markets in the Price Discovery Process of the Sovereign Credit Risk: the Case of Italy

2021 ◽  
pp. 151-175
Author(s):  
Michele Anelli ◽  
Michele Patanè ◽  
Mario Toscano ◽  
Alessio Gioia
Keyword(s):  
Credit Risk ◽  
Price Discovery ◽  
Credit Default Swap ◽  
Government Bond ◽  
Counterparty Risk ◽  
Discovery Process ◽  
Sovereign Credit ◽  
Sovereign Credit Risk ◽  
The Government ◽  
Price Discovery Process

Abstract Hedging and speculative strategies play a key role in periods of financial market volatility particularly during economic crises. In such contexts, liquidity problems tend to evolve into potential credit risk events that amplifies the volatility of several markets such as the CDS and the government bond markets. The former, however, generally embodies a higher sensitivity to volatility due to the operators’ uncertainty about unstable and countercyclical counterparty risk. The aim of this paper is to analyze the long-lasting dynamic relationship between credit default swap (CDS) premia and government bond yield spreads (GBS), by focusing particularly on sovereign credit risk, in order to evaluate the lead-lag markets in the price discovery process against the backdrop of a deep financial crisis. The focus of this study concerns the country of Italy, one of the major European countries that suffers from both weak GDP growth and high public debt, which subjects it to volatility and speculation during periods of financial stress. JEL classification numbers: G01, G12, G14, G20. Keywords: CDS spreads, Government bond spreads, Credit risk, Cointegration, Vector error correction model, Granger-causality.

The Relative Role of Sovereign CDS and Bond Markets in Efficiently Pricing Emerging Market Sovereign Credit Risk

2020 ◽  
Vol 19 (3) ◽  
pp. 296-325
Author(s):  
Zubair Ali Raja ◽  
William J. Procasky ◽  
Renee Oyotode-Adebile
Keyword(s):  
Credit Risk ◽  
Price Discovery ◽  
Emerging Market ◽  
Jel Classification ◽  
Bond Markets ◽  
Relative Role ◽  
Data Set ◽  
Sovereign Credit ◽  
Credit Default ◽  
Sovereign Credit Risk

Extant literature reports mixed findings on the relative efficiency of credit default swaps (CDS) and bond markets in pricing emerging market sovereign credit risk. Using a more comprehensive data set than analyzed earlier, we reexamine this issue and find that CDS dominate bonds in the price discovery of this risk, an advantage we attribute to the greater relative liquidity of that market. One exception is during the financial crisis, suggesting that when panic hits, sovereign markets price credit risk differently. However, even then, the CDS market has a greater impact on price discovery than the bond market, indicating greater overall efficiency. JEL Classification: G11, G12, G13, G14, G23

scholarly journals The Role of CDS Market in the Price Discovery Process of the “PIIGS” Countries Sovereign Credit Risk During the Recent Decade of Monetary Easing

2021 ◽  
pp. 1-29
Author(s):  
Michele Anelli ◽  
Michele Patanè
Keyword(s):  
Credit Risk ◽  
Price Discovery ◽  
Credit Default Swap ◽  
Recent Decade ◽  
Government Bond ◽  
Discovery Process ◽  
Sovereign Credit ◽  
Sovereign Credit Risk ◽  
The Government ◽  
Price Discovery Process

Abstract The aim of this paper is to analyze the long-lasting dynamic relationship between the credit default swap (CDS) premia and the government bond spreads (GBS), with regard to the sovereign credit risk. The practical focus is to evaluate whether the CDS market effectively is the leading or the lagging market in the credit risk price discovery process during the last decade of monetary easing. The analysis extends to all “sensitive” countries in the Eurozone, the so-called “PIIGS” countries (excluded Greece) for the interval 2007-2017. JEL classification numbers: G01, G12, G14, G20. Keywords: CDS spread, Government bond spread, Sovereign credit risk, Cointegration, Vector error correction model, Granger-causality.

In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk

2020 ◽  
Author(s):  
Patrick Augustin ◽  
Valeri Sokolovski ◽  
Marti G. Subrahmanyam ◽  
Davide Tomio
Keyword(s):  
Credit Risk ◽  
Sovereign Credit ◽  
Sovereign Credit Risk

scholarly journals Central bank gold reserves and sovereign credit risk

2021 ◽  
pp. 102127
Author(s):  
Sawan Rathi ◽  
Sanket Mohapatra ◽  
Arvind Sahay
Keyword(s):  
Central Bank ◽  
Credit Risk ◽  
Sovereign Credit ◽  
Sovereign Credit Risk

Banks’ international assets and sovereign default risk

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Filippo Gori
Keyword(s):  
Credit Risk ◽  
Default Risk ◽  
Sovereign Default ◽  
Content Type ◽  
Sovereign Credit ◽  
Developed Economies ◽  
Sovereign Default Risk ◽  
Sovereign Credit Risk ◽  
Using Data ◽  
International Assets

Purpose This paper aims to investigate the nexus between banks’ foreign assets and sovereign default risk in a panel of 15 developed economies. The empirical evidence suggests that banks’ foreign exposure is an important determinant of sovereign default probability. Design/methodology/approach Using data from the consolidated banking statistics (total foreign claims on ultimate risk basis) by the Bank of International Settlements, the author constructs a measure of bank international exposure to peer countries. This measure is then used as the target variable in a panel regression for sovereign credit default swaps. The model includes 15 European and non-European developed economies. Identification is discussed extensively in the paper. Findings Quantitatively, a 1% increase in banks’ cross-border claims increases sovereign default risk by about 0.19%. The relationship is weaker when banks are more capitalised. On the other hand, governments are more vulnerable to credit risk spillovers from banks’ international portfolios when having higher debt to GDP ratios. Originality/value To the best of the author’s knowledge, this is the first paper that attempts explicitly to establish an empirical connection between banks’ international assets and sovereign default risk. To the author’s opinion, this paper represents a contribution to our understanding of how sovereign credit risk spills over across countries. It also extends significantly the existing literature on the determinants of sovereign risk (that primarily focused on fundamentals, market characteristics – such as liquidity – and global factors). This paper ultimately sheds some new light on the role of intermediaries in the international transmission of credit risk, also adding to today’s discussion about the linkages between banks and sovereigns.

scholarly journals How Sovereign is Sovereign Credit Risk?

2007 ◽  
Author(s):  
Francis Longstaff ◽  
Jun Pan ◽  
Lasse Pedersen ◽  
Kenneth Singleton
Keyword(s):  
Credit Risk ◽  
Sovereign Credit ◽  
Sovereign Credit Risk
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