The dynamics of sovereign credit default swap and bond markets of Philippines, Indonesia, Malaysia and Thailand from the period 2009-2012
This paper examined the dynamics of sovereign credit default swap and bond markets of Philippines, Indonesia, Malaysia, and Thailand. In theory, both markets showed a no-arbitage relationship, but the spillover effect was also considered to be one of the dynamics for the relationship of CDS and bond...
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| Main Authors: | , , , |
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| Format: | text |
| Language: | English |
| Published: |
Animo Repository
2014
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| Subjects: | |
| Online Access: | https://animorepository.dlsu.edu.ph/etd_bachelors/6407 |
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| Institution: | De La Salle University |
| Language: | English |
| Summary: | This paper examined the dynamics of sovereign credit default swap and bond markets of Philippines, Indonesia, Malaysia, and Thailand. In theory, both markets showed a no-arbitage relationship, but the spillover effect was also considered to be one of the dynamics for the relationship of CDS and bonds. The researchers discovered that there is long run equilibrium relationship between CDS prices and bond prices derived from the CDS and bond market of all the countries tested across time. The test used for testing the long run relationship was the Johansen cointegration test. In the case of testing for short run relationship between the variables, the test used was the vector error correction model. The result was CDS prices and bond prices also have short run relationship. Furthermore, the Johansen cointegration test and VECM model were also used to determine which market leads the other in price discovery. As it turned out, the CDS market was the one following the bond market for Philippines, Indonesia, Malaysia, and Thailand, and so bond market leads in the price discovery process according to the results. |
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