Sovereign credit risk and exchange rates: Evidence from CDS quanto spreads

• 成果类型: Article
• 署名作者: Augustin, Patrick; Chernov, Mikhail; Song, Dongho
• 署名单位: McGill University; University of California System; University of California Los Angeles; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR); Johns Hopkins University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.12.005
• 发表日期: 2020
• 页码: 129-151
• 关键词: Credit default swaps; Exchange rates; Credit risk; Sovereign debt; contagion

摘要

Sovereign credit default swap quanto spreads tell us how financial markets view the interaction between a country's likelihood of default and associated currency devaluations (the Twin Ds). A no-arbitrage model applied to the term structure of eurozone quanto spreads can isolate the Twin Ds and can gauge the associated risk premiums. Conditional on the occurrence of default, the true and risk-adjusted one-week probabilities of devaluation are 42% (2%) and 90% (55%) for the core (periphery) countries. The weekly risk premium for euro devaluation in case of default for the core (periphery) exceeds the regular currency premium by up to 18 (13) basis points. (C) 2019 Elsevier B.V. All rights reserved.