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Now showing items 1 - 3 of 3

  • Credit default swaps and the market for sovereign debt

    Ismailescu, Iuliana   Phillips, Blake  

    In this paper, we analyze the determinants and effects of credit default swap (CDS) trading initiation in the sovereign bond market. CDS trading initiation is associated with a 30-150 basis point reduction in sovereign bond yields, with greater yield reductions accruing to higher default risk economies. For countries with high default risk, rated B or lower by Standard and Poor's, CDS initiation is also associated with significant price efficiency benefits in the underlying market. CDS trading initiation is more likely following increases in local equity index volatility, index spreads for regional and global CDS markets, or depreciation of the local currency relative to the US dollar, and decreases in a country's ability to service foreign debt. Our results are robust to selection bias controls based on these factors. (C) 2014 Elsevier B.V. All rights reserved.
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  • Savior or Sinner? Credit Default Swaps and the Market for Sovereign Debt

    Ismailescu, Iuliana   Phillips, Blake  

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  • The reaction of emerging market credit default swap spreads to sovereign credit rating changes

    Ismailescu, Iuliana   Kazemi, Hossein  

    This paper examines the effect of sovereign credit rating change announcements on the CDS spreads of the event countries, and their spillover effects on other emerging economies' CDS premiums. We find that positive events have a greater impact on CDS markets in the two-day period surrounding the event, and are more likely to spill over to other emerging countries. Alternatively, CDS markets anticipate negative events, and previous changes in CDS premiums can be used to estimate the probability of a negative credit event. The transmission mechanisms for positive events are the common creditor and competition in trade markets. (C) 2010 Elsevier B.V. All rights reserved.
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