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2013•RePEc: Research Papers in EconomicsOpen access

SOVEREIGN CREDIT RATINGS, THE MACROECONOMY AND CREDIT DEFAULT SWAP SPREADS

Yang Liu, Bruce M. Morley

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Abstract

ABSTRACT:The aim of this study is to determine the main factors affecting sovereign credit default swap(CDS) spreads, with particular emphasis on the relationship between the credit rating scores andthe CDS spreads. Other macroeconomic affects are also included in the estimation which usespanel data from the main EU countries, USA and Japan. The results indicate there is littleevidence to show any relationship between the credit ratings and the sovereign CDS spreads,and the main drivers of sovereign CDS spreads are macroeconomic fundamentals which reflectthe ‘health’ of the economy.

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ABSTRACT:The aim of this study is to determine the main factors affecting sovereign credit default swap(CDS) spreads, with particular emphasis on the relationship between the credit rating scores andthe CDS spreads. Other macroeconomic affects are also included in the estimation which usespanel data from the main EU countries, USA and Japan. The results indicate there is littleevidence to show any relationship between the credit ratings and the sovereign CDS spreads,and the main drivers of sovereign CDS spreads are macroeconomic fundamentals which reflectthe ‘health’ of the economy.

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Available abstract

ABSTRACT:The aim of this study is to determine the main factors affecting sovereign credit default swap(CDS) spreads, with particular emphasis on the relationship between the credit rating scores andthe CDS spreads. Other macroeconomic affects are also included in the estimation which usespanel data from the main EU countries, USA and Japan. The results indicate there is littleevidence to show any relationship between the credit ratings and the sovereign CDS spreads,and the main drivers of sovereign CDS spreads are macroeconomic fundamentals which reflectthe ‘health’ of the economy.

Key concepts: Credit default swap, Sovereign credit, Credit rating, iTraxx, Sovereignty, Economics, Credit risk, Monetary economics

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