Sovereign and Bank CDS Spreads: Two Sides of the Same Coin?
|Title:||Sovereign and Bank CDS Spreads: Two Sides of the Same Coin?||Authors:||Avino, Davide
|Permanent link:||http://hdl.handle.net/10197/7028||Date:||1-Sep-2014||Abstract:||This paper investigates the relationship between sovereign and bank CDS spreads with reference to their ability to convey timely signals on the default risk of European sovereign countries and their banking systems. By using a sample of six major European economies, we find that sovereign and bank CDS spreads are cointegrated variables at the country level. We then perform a more in-depth investigation of the underlying price discovery mechanisms. By decomposing the noise and speed of adjustment components of the price discovery, we find that both variables have an important price discovery role in the period 2004-2013. Most developed countries (Germany, Sweden) show a clear leading role for bank CDS spreads throughout the sample period, whereas most distressed European economies (Portugal and Spain) are governed by a leading role for their sovereign CDS spreads during both the sub-prime crisis and the subsequent European sovereign debt crisis.||Funding Details:||Science Foundation Ireland||Type of material:||Journal Article||Publisher:||Elsevier||Copyright (published version):||2014 Elsevier||Keywords:||Credit default swap spreads;Price discovery;Information flow;Financial crisis;Banks;Sovereign risk;Bank capital;Contingent capital||DOI:||10.1016/j.intfin.2014.05.007||Language:||en||Status of Item:||Peer reviewed|
|Appears in Collections:||FMC² Research Collection|
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