Institutional quality and sovereign credit default swap spreads

Abstract

We examine how the quality of political, legal, and regulatory institutions impacts sovereign risk premia. An improvement in institutional quality significantly lowers a country's sovereign credit default swap (CDS) spread, even after controlling for domestic and global macroeconomic factors. The incremental effect of institutional quality may also be economically important in explaining the variations in the level of sovereign CDS spreads. The basic results are robust to alternative model specifications, samples, control variables, measures of institutional quality, estimation methods, and controls for endogeneity. Overall, the evidence suggests that institutional quality may play a significant role in explaining sovereign CDS spreads.

Forty years of the Journal of Futures Markets: A bibliometric overview

“…The smallest cluster on default swaps and monetary policy contains 57 articles cited 497 times. Articles related to default swaps deal with the credit default swap premia (Benkert, 2004), the sensitivity of collateralized debt obligations (Meneguzzo & Vecchiato, 2004), pricing and integration of credit default swaps (Carverhill & Luo, 2020), risk in bank default swaps (Huang, 2020), credit default swap spreads (Huang et al, 2019), and credit risk (Elkamhi et al, 2012). Articles on monetary policy include predictors of monetary policy (Krueger & Kuttner, 1996) and the effect of monetary policy on stocks and commodities (Basistha & Kurov, 2015; Vähämaa & Äijö, 2011).…”

An Empirical Analysis of the Relationship Between Türkiye’s CDS Premium and Economic, Financial and Political Risk

“…Still, it should be noted that political factors play a significant role in Türkiye since many political risks, such as political upheavals, ethnic conflicts, religious tensions and terror incidents, are constantly on the agenda. Therefore, assessments taking into account these concepts (Gün et al, 2016;Balding, 2011;Huang et al, 2019;Akkaya & Kanar, 2017;Bozkurt & Kaya, 2018;Ulusoy & Kendirli, 2019) are also reviewed within this study. Among these, Gün et al (2016) take into account the Gezi Park Protests of 2013; Akkaya and Kanar (2017) focus on Türkiye's downing of Russian warplane and the coup d'état attempt on 15 th July; Bozkurt and Kaya (2018) assess the news coming from the Arabian Peninsula and Ulusoy and Kendirli (2019) scrutinise the terrorist attacks in Türkiye to investigate the effects of political developments on CDS premia.…”

İktisadi, Finansal ve Politik Risklerin Türkiye CDS Primine Etkileri

“…According to the findings, negative jumps have stronger influences on CDS spreads than positive jumps. Huang, Lin, & Yang (2019) investigated whether the qualities of political, legal and regulatory institutions affect the CDS premium for 70 countries over the period 2000-2015. According to the research results, it was concluded that high corporate quality is associated with lower country risk which is suggesting that institutional quality has a role in explaining sovereign CDS spreads. Ersan & Günay (2009) tested whether the closure case against the ruling party in March 2008 in Turkey has a statistically significant effect on Turkey's CDS using daily data for the period 2004-2009, and they found no significant relationship.…”