Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/185981 
Year of Publication: 
2011
Citation: 
[Journal:] Swiss Journal of Economics and Statistics [ISSN:] 2235-6282 [Volume:] 147 [Issue:] 3 [Publisher:] Springer [Place:] Heidelberg [Year:] 2011 [Pages:] 275-302
Publisher: 
Springer, Heidelberg
Abstract: 
We examine the empirical relationship between credit default swap (CDS) premia and government bond spreads for Portugal, Italy, Ireland, Greece, and Spain (the 'PIIGS' countries). We find some evidence for a long-run relationship in the sense of cointegration for the two markets. In most cases (five out of seven), only CDS premia contribute to the price discovery process. In the other cases, both markets make a more or less equal contribution. All in all, this suggests that bond spreads react only sluggishly to long-term imbalances, as measured by the cointegrating relationship. In light of this, we can conclude that, in most cases, CDS markets are leading markets if there is a long-run relationship between the CDS and gov-ernment bond spread markets. This may partly be due to liquidity effects.
Subjects: 
Greek debt crisis
sovereign credit
CDS market
price discovery
JEL: 
C58
G01
G12
G15
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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