Open AccessThe Price Discovery Mechanism between Sovereign Bond and Sovereign CDS Market: Studies in Selected Countries
Author(s) -
Ngan Bich Nguyen
Publication year - 2017
Publication title -
asian journal of finance and accounting
Language(s) - English
Resource type - Journals
ISSN - 1946-052X
DOI - 10.5296/ajfa.v9i2.11636
Subject(s) - price discovery , sovereignty , nexus (standard) , bond market , volatility (finance) , sovereign credit , economics , bond , financial economics , monetary economics , credit default swap , sovereign debt , business , credit risk , finance , politics , political science , computer science , law , embedded system , futures contract
This paper employs the multivariate VAR model to examine the mechanic work of price discovery process between sovereign CDS market and the associated sovereign bond market in contexts of five European and Asian countries, including Vietnam, Korea, Portugal, Italy and France from the beginning of 2008 to the end of April, 2017. The study accentuates on three aspects: the short-term interaction nexus between the sovereign CDS and the associated-sovereign bond market, the long-term co-movement between them and the discovery of which market plays the leading role in the pricing process. The results evidence the short-run and long-run relationship for the two markets. Particularly, the empirical test results support for the predominant role of the sovereign CDS market in the price discovery process in the bulk of sample entities. This might suggests for the governments to use CDS prices as the future indicator for predicting the volatility of debt markets.