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
47 Pages Posted: 29 Oct 2009 Last revised: 4 Sep 2019
Date Written: October 29, 2009
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: Suggested Citation