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Sovereign and bank CDS spreads: Two sides of the same coin? / Davide Avino, John Cotter

Journal of International Financial Markets, Institutions and Money, Volume: 32, Pages: 72 - 85

Swansea University Author: Davide Avino

DOI (Published version): 10.1016/j.intfin.2014.05.007

Abstract

We perform an in-depth investigation of the price discovery between sovereign and bank CDS spreads and find that both variables have an important role in the period preceding the financial crisis of 2007-2009. However, during the global financial crisis and the subsequent European sovereign debt cri...

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Published in: Journal of International Financial Markets, Institutions and Money
Published: 2014
URI: https://cronfa.swan.ac.uk/Record/cronfa21589
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Abstract: We perform an in-depth investigation of the price discovery between sovereign and bank CDS spreads and find that both variables have an important role in the period preceding the financial crisis of 2007-2009. However, during the global financial crisis and the subsequent European sovereign debt crisis, sovereign CDS spreads dominate the price discovery process. Our findings suggest that, especially during crisis periods, sovereign CDS spreads incorporate more timely information on the default probability of European banks than their corresponding bank CDS spreads.
College: School of Management
Start Page: 72
End Page: 85