On the Reliability of a Credit Default Swap Contract during the EMU Debt Crisis
Journal Title: Finance a uver - Year 2016, Vol 66, Issue 6
Abstract
The reliability of the credit default swap market was questioned repeatedly during the EMU debt crisis. This article examines whether this development influenced sovereign EMU CDS prices in general. We regress the CDS market price on a model risk neutral CDS price obtained from an adopted reduced form valuation model in the 2009–2013 period. We look for a breakpoint in the single-equation and multi-equation econometric models in order to show the changes in relationships between the CDS market and model prices. Our results differ according to the risk profile of a country. We find that in the case of riskier countries, the relationship between the market and model price changed when market participants started to question the ability of CDS contracts to protect their buyers. Specifically, it weakened after the change. In the case of less risky countries, the change happened earlier and the effect of a weakened relationship is not observed.
Authors and Affiliations
Petra Buzkova, Milos Kopa
Keywords
Related Articles
- EP ID EP297628
- DOI -
- Views 144
- Downloads 0
A Cross-Country Analysis of Monetary Policy Effects on Prices
What determines the size of monetary policy effects on prices? This is one of the crucial questions for the efficient conduct of monetary policy. Therefore, this study investigates this issue by exploring variations in t...
Linkages Between Equity and Global Food Markets: New Evidence from Including Structural Changes
The study provides new and robust evidence to the relationship between stock and food markets in terms of shock and volatility spillovers and dependence structure by focusing on the importance of taking into account stru...
Has CEFTA Increased Members’ Mutual Trade? Evidence with an Enlarged Set of Plausibly Exogenous Instruments
The objective of the paper is to measure the effect of the Central European Free Trade Agreement (CEFTA) in its today’s composition on members’ mutual trade. Special consideration is given to CEFTA endogeneity stemming f...
Labor Tax Harmonization in a Multi-Country Model
Labor tax rates are considerably heterogeneous across European countries. In this paper, we investigate the effects of a hypothetical policy experiment in which the tax rates levied on labor are harmonized in the member...
Productivity and Efficiency Evaluation of US Mutual Funds
In this paper assess the relative performance of US mutual funds using a non-parametric method such as data envelopment analysis (DEA). In particular, we assess the changes of mutual funds’ total productivity using the D...