Version 1
: Received: 30 October 2021 / Approved: 1 November 2021 / Online: 1 November 2021 (11:50:02 CET)
How to cite:
Rikhotso, P.; Simo-Kengne, B.D. Dependence Structures Between Sovereign Credit Default Swaps and Global Risk Factors in Brics Countries. Preprints2021, 2021110011. https://doi.org/10.20944/preprints202111.0011.v1
Rikhotso, P.; Simo-Kengne, B.D. Dependence Structures Between Sovereign Credit Default Swaps and Global Risk Factors in Brics Countries. Preprints 2021, 2021110011. https://doi.org/10.20944/preprints202111.0011.v1
Rikhotso, P.; Simo-Kengne, B.D. Dependence Structures Between Sovereign Credit Default Swaps and Global Risk Factors in Brics Countries. Preprints2021, 2021110011. https://doi.org/10.20944/preprints202111.0011.v1
APA Style
Rikhotso, P., & Simo-Kengne, B.D. (2021). Dependence Structures Between Sovereign Credit Default Swaps and Global Risk Factors in Brics Countries. Preprints. https://doi.org/10.20944/preprints202111.0011.v1
Chicago/Turabian Style
Rikhotso, P. and Beatrice D. Simo-Kengne. 2021 "Dependence Structures Between Sovereign Credit Default Swaps and Global Risk Factors in Brics Countries" Preprints. https://doi.org/10.20944/preprints202111.0011.v1
Abstract
This study examined the tail dependency structure of sovereign credit risk and three global risk factors in BRICS countries using copulas approach, which is known for its ability to provide the “true” tail correlation based on the correct marginal distribution. The empirical results show that global market risk sentiment comoves with sovereign CDS spreads across BRICS countries under extreme market events, with Brazil having the highest co-dependency followed by China, Russia, and South Africa. Furthermore, oil price volatility is the second biggest risk factor correlated with sovereign CDS spreads for Brazil and South Africa while exchange rate risk exhibits very small co-dependence with sovereign CDS spreads under extreme market conditions dominated by tail events. On the contrary, exchange rate risk is the second largest risk factor co-moving with China and Russia’s sovereign CDS spreads while oil price volatility exhibits the lowest co-dependence to CDS in these countries. Between oil price and currency risk, evidence of single risk factor dominance is found for Russia where exchange rate risk is largely dominant. These results suggest that BRICS policymakers might consider financial sector regulations that mitigate risks spill-over such as targeted capital controls when markets are distressed.
Keywords
Global risk factors; Credit Default Swaps; Sovereign credit risk; Copulas approach
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
