Price discovery of sovereign credit risk in the Euro zone
(2010)Department of Business Administration
- Abstract
- This paper compares credit pricing on the bond market and the credit default swap market with focus on countries of the Euro zone and in particular on Greece. For the period 2006 to 2008 we find that the two markets are closely related and that the CDS market is the main forum of price discovery. After 2008 the relationship loosened, however we find evidence that the bond market still is affected by the CDS market. Overall, the results of this paper suggest that the relationship between the two markets on sovereign level is similar to the rela- tionship on corporate level. However, in contrast with previous findings on corporate level, the German government bond is found to be the best proxy of the risk free rate when pricing the credit... (More)
- This paper compares credit pricing on the bond market and the credit default swap market with focus on countries of the Euro zone and in particular on Greece. For the period 2006 to 2008 we find that the two markets are closely related and that the CDS market is the main forum of price discovery. After 2008 the relationship loosened, however we find evidence that the bond market still is affected by the CDS market. Overall, the results of this paper suggest that the relationship between the two markets on sovereign level is similar to the rela- tionship on corporate level. However, in contrast with previous findings on corporate level, the German government bond is found to be the best proxy of the risk free rate when pricing the credit risk of the analyzed countries. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2169611
- author
- Perpignani, Kristofer and Meister, Markus
- supervisor
- organization
- year
- 2010
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Bond spread, credit default swap, cointegration, price discovery, Vector error correction model, Management of enterprises, Företagsledning, management
- language
- Swedish
- id
- 2169611
- date added to LUP
- 2010-06-04 00:00:00
- date last changed
- 2012-04-02 18:15:44
@misc{2169611,
abstract = {{This paper compares credit pricing on the bond market and the credit default swap market with focus on countries of the Euro zone and in particular on Greece. For the period 2006 to 2008 we find that the two markets are closely related and that the CDS market is the main forum of price discovery. After 2008 the relationship loosened, however we find evidence that the bond market still is affected by the CDS market. Overall, the results of this paper suggest that the relationship between the two markets on sovereign level is similar to the rela- tionship on corporate level. However, in contrast with previous findings on corporate level, the German government bond is found to be the best proxy of the risk free rate when pricing the credit risk of the analyzed countries.}},
author = {{Perpignani, Kristofer and Meister, Markus}},
language = {{swe}},
note = {{Student Paper}},
title = {{Price discovery of sovereign credit risk in the Euro zone}},
year = {{2010}},
}