On the dynamic behavior of the worldwide sovereign Credit Default Swaps markets

Abstract : Contagion phenomenon, efficiency hypothesis and spillover effects are amongst the most important economic theories as they provide an overall vision of the financial stability, yet the least understood in the aftermath of the recent crises. This thesis proposes to provide policy makers, investors and broadly market participants with an updated outlook of the dynamic behavior of the global sovereign Credit Default Swaps (CDS) markets: informational efficiency, interaction with other international financial markets and systemic-risk exposure. The steadily changing dynamics of these markets combined with the constantly evolving regulatory policies have led to a shared worldwide enthusiasm regarding the behavioral study of CDS markets, in which we contribute through five interconnected essays. We first discuss, in the first essay, the statistical characteristics of the sovereign CDS data, through the estimation of 9 GARCH-class models. This chapter compares the predictability performances of several linear and non-linear volatility models taking into consideration different financial stylized facts. Application on CDS spreads of 38 countries reveals that the forecasting power of these models depends on their ability to capture sovereign CDS features while estimating the variance process. Yet, the fractionally-integrated models outperform the basic GARCH-class models due to the allowed flexibility regarding the persistence degree of the variance shocks. These results are used to jointly model returns and volatility of CDS spreads in the forthcoming essays.The second essay also investigates the financial characteristics of the international sovereign CDS markets, by giving new evidences on their efficiency degrees. Using a new framework based on a 3-step estimation of a VECM-FIGARCH model, we show that information contained in CDS spreads and bond yields are not always instantaneously and properly reflected in the current sovereign risk level. Results reveal the existence of arbitrage opportunities with a partial rejection of the randomness hypothesis in some of the 37 studied countries. While the previous essay used the conditional expectation of CDS spreads to study the market behavior, the next essays rather focus on the properties of the variance and covariance. The predictability of sovereign CDS volatility, based on the information contained in some country-specific and global macroeconomic factors, is investigated in the third chapter [etc...]
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Saker Sabkha. On the dynamic behavior of the worldwide sovereign Credit Default Swaps markets. Business administration. Université de Lyon; Institut des Hautes Etudes Commerciales (Carthage, Tunisie), 2018. English. ⟨NNT : 2018LYSE1127⟩. ⟨tel-02436324v2⟩

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