The Reaction of Emerging Market Credit Default Swap Spreads to Sovereign Credit Rating Changes

Journal of Banking and Finance, Vol. 34, pp. 2861-2873, 2010

Pace University Finance Research Paper No. 2009/09

47 Pages Posted: 29 Oct 2009 Last revised: 4 Sep 2019

See all articles by Iuliana Ismailescu

Iuliana Ismailescu

Pace University - Lubin School of Business

Hossein B. Kazemi

University of Massachusetts at Amherst - Isenberg School of Management

Date Written: October 29, 2009

Abstract

This paper examines the impact of sovereign credit rating change announcements on the CDS spreads of the event countries, and their spillover effects on other emerging economies' CDS premiums. In contrast to previous work, we find that positive events have a more consistent impact on sovereign CDS markets in the short period surrounding the event, and are more likely to spill over to other emerging markets, whereas negative events have a higher probability of being predicted by the CDS premium. The transmission mechanisms for positive events are the common creditor and competition in trade markets.

Keywords: CDS markets, CDS spreads, credit rating events, emerging markets, spillover effects

JEL Classification: F30, G11, G14, G15

Suggested Citation

Ismailescu, Iuliana and Kazemi, Hossein B., The Reaction of Emerging Market Credit Default Swap Spreads to Sovereign Credit Rating Changes (October 29, 2009). Journal of Banking and Finance, Vol. 34, pp. 2861-2873, 2010, Pace University Finance Research Paper No. 2009/09, Available at SSRN: https://ssrn.com/abstract=1496602

Iuliana Ismailescu (Contact Author)

Pace University - Lubin School of Business ( email )

One Pace Plaza
New York, NY 10038
United States
212-618-6524 (Phone)

Hossein B. Kazemi

University of Massachusetts at Amherst - Isenberg School of Management ( email )

Amherst, MA 01003-4910
United States

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