Sovereign and bank CDS spreads: Two sides of the same coin?

Avino, Davide; Cotter, John

doi:10.1016/j.intfin.2014.05.007

Cited by 36 publications

(12 citation statements)

References 30 publications

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“…However, their analysis was based on older data. The study of Avino and Cotter (2014) showed with data from the time period of 2004-2013 that bank CDS from Germany and Sweden strongly affect the development of sovereign CDS, whereas CDS from countries like Portugal or Cyprus are strongly influenced by sovereign CDS.…”

Section: Data Analysis Of Corporate and Bank Cdsmentioning

confidence: 99%

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European CDS Premiums and Industrial Production

Gerhard¹,

Dieter²

2016

UCPA

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This paper aims to find the dependence of the important European corporate CDS (Credit Default Swaps) indices and some selected country CDS of industrial production. While the existing literature acknowledges the importance of macroeconomic factors in determining CDS spreads from a general perspective, the importance of economic growth for individual firms, banks, and countries has not been examined in detail. The main hypothesis of the paper claims that weaker ratings are more growth-sensitive than better ratings. This means that the CDS will react more strongly to the industrial production when the rating is weaker. The authors analyzed the European CDS indices of investment grade, high yield enterprises, senior bank debt, and subordinated bank debt with a linear OLS (Ordinary Least Squares) regression. While the authors had to reject their main hypothesis for the European indices, they could prove their hypothesis concerning the country perspective: The German CDS has the weakest relation to industrial output, and the authors' hypothesis can be confirmed tendentially concerning the correlations of the more weakly rated countries (European periphery), which are much better. Surprisingly the correlation between peripheral country CDS and industrial production is much stronger than the correlation of corporate and bank CDS and industrial production. (ISDA Swapsinfo, 2016). This huge reduction of approximately 75% of traded volume may be correlated with the rising regulatory frameworks within the banking industry. CDS are widely used to reduce credit risks of countries, banks, or enterprises in general and are moreover considered for hedging speculative activities. In contrast to corporate bonds, the market of CDS shows much more liquidity and CDS are declared in basis points and not in total return ratios as seen in bond markets.Recent scientific studies have been carried out to identify influential factors for CDS markets. Guo and Newton (2013) found a multi-correlation among volatility, leverage, liquidity, risk free interest rate, and CDS premiums. These correlations have been identified empirically, based on the so-called "pioneering model of

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Section: Data Analysis Of Corporate and Bank Cdsmentioning

confidence: 99%

“…The correlations should be better for banks and corporates from countries with a weak rating. This assumption is based on Alter and Schüler (2011; and Avino and Cotter (2014). Alter and Schüler (2011; claimed that the CDS of banks follow the sovereign CDS.…”

Section: Data Analysis Of Corporate and Bank Cdsmentioning

confidence: 99%

European CDS Premiums and Industrial Production

Gerhard¹,

Dieter²

2016

UCPA

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“…Second, the period covers approximately 5 years before the GFC and 6 years after which allows for an examination of the changes in market conditions pre-and post-GFC. Finally, the period 5 For instance, Avino and Cotter (2014), Piccotti and Schreiber (2014), Comerton-Forde and Putniņš (2015), Le and Zurbruegg (2015), and Patel, Putniņš, Michayluk, and Foley (2016). 6 The converse may also be true; a higher level of transacted volume resulting from higher price discovery occurring at a venue indicating that an endogenous relationship between volume and price discovery exists (Wang & Yang, 2011).…”

Section: Datamentioning

confidence: 99%

The evolution of price discovery in us equity and derivatives markets

Wallace

Kalev

Lian

2019

Journal of Futures Markets

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This study considers the evolution of price discovery in the S&P 500 E‐mini futures and the corresponding exchange traded fund (SPY ETF) over the period January 2002 through December 2013. The study reports evidence that the E‐mini futures dominate price discovery at the beginning of the sample period. However, from 2007 onward both the SPY ETF and E‐mini futures contribute similar portions to the price discovery process. The level of price discovery is significantly influenced by volume measures and relative levels of transaction costs for both securities.

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“…Bad news are news that have a negative impact on stocks, causing a decrease in stock prices. Examples of bad news would be a drastic increase in bank interest rates, or increases in fuel prices, among others (Gennaioli et al, 2014;Avino & Cotter, 2014;Kung, 2015;Engler & Große-Steffen, 2016;Vegh, 2017;Korinek, 2018). Examples of good news, which cause prices to rise, would be a sharp increase in sales, a reduction in lending rates, or an expansion of business operations (Gali, 2015).…”

Section: The Relationship Between Information and Stock Price Movementsmentioning

confidence: 99%

Understanding capital market responses to government economic policy announcements: An event study on Indonesia’s Economic Policy Package

Gursida¹,

Indrayono²

2019

10.5267/j.msl

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This paper investigates the changes in stock market returns before and after the announcement of a sample of three instalments, or 'volumes', (I, X, and XVI) of the Indonesian government's Economic Policy Package (EPP), between 2015 and 2017. It tracks Abnormal Return (AR) and Cumulative Abnormal Return (CAR) on the Composite Stock Price Index (JCI) and ten sectorial indices of the Indonesia Stock Exchange. By testing for the direction and significance of differences in AR and CAR, the paper aims to clarify whether those announcements provided sufficient informational content to sway prices. The study finds that the impact of the policy announcements was recorded primarily by individual sectors, but did not elicit a significant market-wide response. Moreover, the majority of economic sectors consistently reacted negatively. This shows that, overall, capital markets did not feel those government policies contain sufficient measures to remove obstacles to business activity.

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Sovereign and bank CDS spreads: Two sides of the same coin?

Cited by 36 publications

References 30 publications

European CDS Premiums and Industrial Production

European CDS Premiums and Industrial Production

The evolution of price discovery in us equity and derivatives markets

Understanding capital market responses to government economic policy announcements: An event study on Indonesia’s Economic Policy Package

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