A study on the relationship of stock market index price, foreign exchange rate, and interest rate swap (IRS) rate to sovereign credit default swap spreads (CDS) of Vietnam, Indonesia and Philippines (VIP) for the years 2007-2011

• Main Authors: Castro, Cyrill Rhojiemel P., Nocon, Karen Chaesei H., Ochavo, Grace Z., Umali, Krizzia A.
• Format: text
• Language: English
• Published: Animo Repository 2013
• Subjects: Stocks > Prices; Foreign exchange rates; Interest rate swaps; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18534
• Institution: De La Salle University

This study examined the relationship between the independent variables, namely, the stock market index price, foreign exchange rate, and interest rate swap (IRS) rates, with the dependent variable, the sovereign CDS spreads, of countries Vietnam, Indonesia, and Philippines for the years 2007-2011 using the Pearson's correlation coefficient model and the Johansen's cointegration rank test. The least-squares dummy variable (LSDV) model was used to determine the significance of the independent variables to the movements of the CDS spreads for each country in the five-year time period in assessing the default risk of a country. Based on the results of the Pearson's correlation, only the IRS rate of the Philippines did not follow the a-priori expectation however, since correlation only measures the short run relationship, it does not determine the long run relationship so, cointegration was used. As for the Johansen's cointegration rank test, only the Philippine stock market price, USD/PHP foreign exchange rate and Ho Chi Minh stock market index price were cointegrated with their respective CDS spreads. All of the explanatory variables contribute a significant effect to the movement of the CDS spreads as shown by the LSDV model however, the time dummies were found to be insignificant.