Work

Regime-Switching Determinants for Spreads of Emerging Markets Sovereign Credit Default Swaps

Year: 2018

Type: article

Abstract: Using the Markov regime switching approach, we investigate the dependency of short term sovereign credit default swap (SCDS) spread changes on a nation’s country-specific fundamental factors, local, regional and macroeconomic global factors. We find that the significance of the determinants of SCDS spread changes differ across the two states of our regime-switching model. Specifically, in the good state, the weekly SCDS spread changes are mainly determined by local, regional and fundamental factors; whereas global variables have a stronger influence in the bad regime. In particular, US market returns play a dominant role in influencing the SCDS spread change in the bad state suggesting loss aversion and flight–to–quality behavior of investors. We then examine the cross-sectional differences of the above regime switching effect based on country-specific characters and find that the regime switching effect is associated with a nation’s country-specific characters such as openness, economic size and so forth.

Source: Sustainability

DOI: 10.3390/su10082730

Authors: Jason Ma, Xiang Deng, Kung-Cheng Ho, Sang-Bing Tsai

Institutions: Zhongnan University of Economics and Law, University of Electronic Science and Technology of China, Civil Aviation University of China, University of Electronic Science and Technology of China, Zhongshan Institute

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $2,896

Funders: Zhongnan University of Economics and Law, National Natural Science Foundation of China, National Social Science Fund of China, Trường Đại học Kinh tế - Luật, Đại học Quốc gia Thành phố Hồ Chí Minh