Abstract:
I investigate the contemporaneous relationship between the Soverign CDS spread and the stock market during the period from 2016 to 2020 of some Asian countries. After the severe economic crisis, the role of the CDSs with respect to the stock market is state dependent, especially the sovereign CDSs play a stronger role in the economic with higher perceived credit risk. By using a Vector Autogressive model and a panel data model, I find the evidence supporting that the sovereign CDS market took over the stock market and led a process. Furthermore, I also divide the analyzed countries into two groups: the countries with higher sovereign CDS spreads and the group of countries with lower sovereign CDS spread - it can be seen that the leadership position of the sovereign CDS markets during 2020 was strengthened by the harsh impacts of the covid-19 pandemic. There is a more modest leading role of CDSs in the countries with lower spread.
