Has the CDS market influenced the borrowing cost of European countries during the sovereign crisis?
Delatte, Anne-Laure (Rouen Business School)
Lopez Villavicencio, Antonia (University of Paris North)
Gex, Mathieu (University of Grenoble)

Date:	2012
Abstract:	This paper assesses the potential influence of the growing CDS market on the borrowing cost of sovereign states during the European sovereign crisis. We analyze the sovereign debt market to ascertain the pattern of information transmission between the CDS and corresponding bond markets. Our methodological innovation is the use of a non-linear specification rather than the linear VECM specification customarily employed. Using a panel smooth transition model during the 2008-2010 period, we find that: 1) linearity tests clearly reject the null hypothesis of a linear transmission mechanisms between the bond and the CDS markets; 2) market distress alters the mutual influence and 3) the higher the distress the more the CDS market dominates the information transmission between CDS and bond markets.
Rights:	Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, i la comunicació pública de l'obra, sempre que no sigui amb finalitats comercials, i sempre que es reconegui l'autoria de l'obra original. No es permet la creació d'obres derivades.
Language:	Anglès
Document:	Article ; recerca ; Versió publicada
Subject:	Sovereign credit default swaps ; European sovereign crisis ; Panel smooth transition models ; Cointegration
Published in:	Journal of International Money and Finance, Vol. 31, Num. 3 (2012) , p. 481-497, ISSN 0261-5606

DOI: 10.1016/j.jimonfin.2011.10.008

Postprint 27 p, 489.2 KB

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