The Joint Behavior of Sovereign CDS Spreads and Country Equity Risk: an Empirical Analysis
DOI:
https://doi.org/10.14665/1614-4007-21-1-002Keywords:
Country Risk, Country Equity, Conditional Value at Risk, Sovereign Credit Default Swap, Risk MeasuresAbstract
Starting from the Merton structural model it is possible to show that an in- verse relationship holds between rms CDS spreads and their equity premium. My work investigates empirically if the relation holds also for countries.
To this aim, I have considered the daily CDS spreads on the 5 years government bonds of a set of countries (Brazil, China, Greece, Italy, Russia and US) and compared year by year their behavior with that of the countries daily equity premium dened in terms of Conditional Value at Risk (CVaR) over the period 2006-2012. The results conrm a strong inverse relationship between CDS spreads and equity risk premium.
Downloads
Published
How to Cite
Issue
Section
The author gives permission to Transition Academia Press to publish the article in print and/or electronic format.
If/when an article is accepted for publication, Author will be asked to transfer copyright of the article to Transition Academia Press. Transition Academia Press will retain copyright of all published material and reserves the right to re-use any such material in any print and/or electronic format. Author willing to retain their copyright from the Editors might request a fair condition, on the base of a bilateral agreement.
