Abstract

MARTINEZ ARROYO, Jeimy Lorena  and  MARIN RODRIGUEZ, Nini Johana. Dynamic relationship between Credit Default Swaps and sovereign debt. Analysis on the Latin-American context. Cuad. Econ. [online]. 2021, vol.40, n.83, pp.583-608.  Epub Oct 06, 2021. ISSN 0121-4772.  https://doi.org/10.15446/cuad.econ.v40n83.81997.

We analyse how the Credit Default Swaps (CDS) are related to sovereign risk in Brazil, Chile, Colombia, and Mexico, during the period 2010-2019. Dynamic conditional correlation (DCC) models and Granger causality tests are estimated. There is a decreasing general trend in the correlations of the last years of the sample, which can be explained by an improvement in the sovereign debt credit rating and a fall in investment risk in Colombia, Chile, and Brazil. In addition, the empirical results show that the CDS influences the behaviour of public debt bonds.

JEL: C32, C51, D81, G12, H63.

Keywords : Credit default swaps; credit derivatives; credit risk; dynamic conditional correlation; sovereign debt.

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