Sovereign CDS Instruments in Central Europe – Linkages and Interdependence
DOI:
https://doi.org/10.12775/DEM.2011.008Keywords
multivariate volatility, credit default swap, contagion, sunspot, Central EuropeAbstract
In the article, linkages among sovereign CDS instruments in Central Europe are investigated. Special attention is paid to the change of causality patterns during the Hungarian and Greek crises. The results of the research reveal that the expectations do play a role in determining the prices of the contracts, as well as that there exist regional causality relationships between the
instruments. The strength of causality between the volatilities of Polish – Hungarian and Czech - Hungarian CDS prices weakened during the Hungarian crisis, while the volatilities of the three time series reacted rapidly and strongly to the Greek one. This suggest that the European events should play more important role in determining the dynamics of the contracts than the problems of the country of the weakest fundamentals in the region.
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