Default correlation at the sovereign level: evidence from some Latin American markets
Abstract:Using the eruption of Argentina debt crisis in 2001 as a natural experiment, we investigated the correlated default at the sovereign level for some Latin American countries. Daily closing market quotes for sovereign Credit Default Swaps (CDS) of Argentina, Brazil, Mexico and Venezuela were obtained from CreditTrade database. Using copula approach, we observed increased dependences among sovereign CDS markets during the crisis period. Their dependence structures were found to be asymmetric. Moreover, the degree of credit contagion was related to the creditworthiness of the country. This study also discussed the implications of these findings for policymakers.
Document Type: Research Article
Affiliations: 1: Department of Finance, Chung Hua University, Hsinchu 300, Taiwan 2: Institute of Finance, National Chiao Tung University, Hsinchu 300, Taiwan 3: Department of Finance, National Chengchi University, Taipei 11605, Taiwan
Publication date: 2011-04-01